I  -    / 


University  of  California. 

FROM   THE    LIBRARY   OF 

DR.    FRANCIS     LIE  B  E  R  , 
Professor  of  History  and  Law  in  Columbia  College,  New  Y<>rk 


THK   GIFT   OF 

MICHAEL     REES 

Of  San  Francisco. 
1873. 


. 


POLITICAL  ECONOMY 


DESIGNED    A  S 


A  TEXT-BOOK  FOR  COLLEGES. 


B  T 

JOHN  BASCOM,  A.M., 

PROFESSOR     IN    WILLIAMS    COLLEGE. 


ANDO  VER: 
PUBLISHED    BY   W.    F.    DRAPER. 

18  5  9. 


$ 


3 


$ 


Entered  according  to  Act  of  Congress,  in  the  year  1859, 
BY   W.  F.  DRAPER, 
In  the  Clerk's  Office  of  the  District  Court  for  the  District  of  Massachusetts. 


ELECTROTYPED     AND     PRINTED 
BY     W .    F.    DKAPEB,     ANDOVEE,    MASS 


CONTENTS 


INTRODUCTION. 

PAGE 

§  1.  The  Relations  and  Character  of  Political  Economy  as  a  Science,      9 

§  2.  Advantages  of  its  Study, 14 

§  3.  Its  History,        .  16 


PRELIMINARY  PRINCIPLES. 

§  1.  Elements  of  Value, 19 

§  2.  Difficulty  of  Attainment  of  two  kinds  —  Measures  Value,     .        .  21 

§  3.  Things  involved  in  Utility  and  Difficulty  of  Attainment,       .        .  22 


BOOK    I.-PEODUCTION. 
CHAPTER    I. 

GENERAL    PRINCIPLES    OF   PRODUCTION. 

§  1.  Nature  of  Production  —  Products  divided  into  Services  and  Com- 
modities,    25 

§  2.  All  Men  desire  Wealth,  and  this  at  the  least  Sacrifice  —  Con- 
sumption of  two  kinds, 28 

§  3.  Sacrifices  requisite  to  Production  —  Effect  of  Intelligence,    .        .    31 


IV  CONTENTS. 

CHAPTER    II. 

NATURAL  AGENTS. 

PAGE 

§  1.  Definition  and  Division  of  Natural  Agents, 34 

§  2.  Value  of  Land  dependent  on  Fertility  and  Position  —  Effect  of 

Improvements  on  the  Means  of  Communication,        .        .    35 

§  3.  Additional  Labor  bestowed  on  the  same  Lands  meets  with  de- 
creasing Returns, 37 

§  4.  Effect  of  Improvements  in  Methods  of  Culture,  in  Tools,  and  in 

Transportation  —  Mines, 40 

§  5.  Natural  Agents  which  impart  Power,  —  Wind,  Water,  Steam,      .    44 

CHAPTER    III. 

OPERATION    OF   LAW    ON   PRODUCTS    THROUGH   NATURAL 

AGENTS. 

§  1.  Original  Ownership  of  Land  —  Equality  of  Division  —  Method 

of  Tenure, 48 

§  2.  The  Laborer  should  be  a  Freeholder  —  Condition  of  old  Countries 

—  How  reached, 52 

§  3.  Inheritance  —  Laws  of  Inheritance, 56 


CHAPTER    IV. 

LABOR. 

§  1.  Definition  of  Labor —  The  Division  of  Laborers  into  Productive 
and  Unproductive  set  aside  —  Labor  resulting  in  Services 
compared  with  that  resulting  in  Commodities,      .        .        .61 

§  2.  Three  kinds  of  Utilities  —  Several  Directions  of  Labor  — Food 
of  the  Laborer  not  included  in  the  Value  of  the  Commodity 
produced  —  Three  things  on  which  Productiveness  of 
Labor  depends, 64 


CONTENTS.  V 

CHAPTER    V. 

CAPITAL. 

PAGE 

1.  Definition  of  Capital  — Its  division   into  Fixed  and  Circulating 

Capital  —  Their  several  Varieties  —  Money,  .        .        .        .69 

2.  Capital  replenishes  itself— Advantages  of  Capital  —  Instruments 

—  Division  of  Labor  — Large  Transactions,        .        .        .73 

3.  The  Recompense  of  Mechanical  Labor  tends  to  Increase  —  The 

Limits  of  Capital  —  The  Barriers  Elastic,      .        .        .        .76 


CHAPTER    VI. 

EFFECT    OF    LAW    ON    PRODUCTION    THROUGII    LABOR    AND 
CAPITAL. 

§  1.  The  Chief  Office  of  Government  —  Protection  —  Internal  Im- 
provements,     81 

§  2.  Monopolies,  what  —  When  Legitimate  —  Banks  —  Railroads  — 

Patents  and  Copyrights, 83 

§  3.  Laws  of  Interest  —  Their  Defect  in  Theory  and  in  Fact,      .        .      88 

^  4.   Protection  of  Industry  —  General  Reasons  against  it,        .        .      90 

§  5.   Specific   Considerations  examined  —  Variety  in   Production  — 

Skill  and  Capital  —  Too  great  Concentration,      ...      94 

§  6.  Population  follows  Food  —  Inducements  which  an  Agricultural 
Country  offers  to  Manufactures  —  Principles  of  Political 
Economy  not  restricted, 99 

§  7.  Protection  as  a  Means  of  Retaliation  —  Division  between  Na- 
tions of  the  Profits  of  a  Trade  —  How  affected  by  a  Tariff,    105 

$  8.  Taxation  —  Principles  of  Taxation  as  stated  by  Adam  Smith  — 
Direct  and  Indirect  Taxes  —  Advantages  and  Disadvan- 
tages of  each  —  United  States,      .        .        .        ,.       .        .110 
1 


TI  CONTEXT-. 


CHAPTER    VII. 

THE    INTERACTION    OF    THE    FORCES    OF    FKODUCTION. 

FAOE 

$  1.  Connection  of  Population  with  Food  —  Law  of  Increase  in  each,  118 
<j  2.  Law  of  Agricultural  Labor  further  ....  122 
\  3.  Checks  on  Population  two,  Positive  and  Preventative,  .  .  125 
«  1.  Relation  of  Natural  A irents  and  Labor  to  Capital,  ...  127 
$  5.  The  Doctrine  of  a  General  Glut  —  Progress  defined  and  explained,  129 
$  6.  Production  as  dependent  on  the  state  of  the  Laborer  —  Luxuri- 
ous Expenditure 132 

$  7.  Qualities  in  a  People  essential  to  Prosperity,         .        .        .        .138 

§  8.  Conclusions, 140 


BOOK    II. -DISTRIBUTION. 
CHAPTER    I. 

NOMENCLATURE. 

$  1.  The  Income  of  Money  spent  in  Agricultural  Improvements,  Rent 

—  Wages  confounded  with  Rent, 143 

$  2.  Capitalist  and  Laborer  often  the  same  —  Skill  not  Wealth  — 

Unusual  Returns, 145 

$  3.  Terms  given, 149 

$  4.  Limitations  of  Laws  pointed  out, 150 

CHAPTER    II. 

RENT. 

§  1 .  First  Cause  of  Rent,  Decreasing  Returns  of  Land,        .        .        .153 
$  2.  Second  Cause  of  Rent,  Unequal  Fertility  —  Rent  not  dependent 

on  Order  of  Occupation, 156 

$  3.  Leading  Proposition  pertaining  to  Rent, 158 

$  4.  Tax,  Tithes  —  When  Rent  increases  rapidly,         ....    159 
4  5.   Mines— Natural  Agents  yielding  Power,       .        .        .        .        /    161 


CONTEXTS.  VII 

CHAPTER    III. 

WAGES. 

PAGE 

§  1.   Terras  High  and  Low,  as  applied  to  Wages,        ....    104 

§  2.   Xo  Standard  of  Comparison  in  Labor, 1(3*5 

§  3.  The    Wages-fund    the    Proximate    Measure  of   Wages  —  Two 

Causes  measuring  Wages-fund, 171 

§  4.  Competition  as  affecting  Wages  and  Profits,  ....  173 
§  5.  Wages  as  dependent  on  the  Character  of  the  Laborer,  .  .170 
$  6.   Conduct  of  the  Capitalist  —  Motives  to  Abstinence,  and  Methods 

of  Expenditure, 17S 

§7.   Kind  of  Goods  Manufactured,   and  Time  of  Advance  — Con- 
clusions,   182 

§  8.  Interest  of  Laborer  and  Capitalist  the  same  — Rent  always  In- 
creasing —  Relation  of  Agriculture  to  General  Welfare,      .     183 
§  9.  Effect  of  Machinery  on  Wages  —  Labor-saving  Machincnr  em- 
ployed in  Agriculture, 186 

CHAPTER    IV. 

VARIATION    OF    WAGES    IX    DIFFERENT    EMPLOYMENTS. 

§  1.   Things  which  affect  the  Character  and  Compensation  of  Lalwr,  191 

$  2-  The  Compensation  of  Skilled  Labor, 193 

$  3.   Professional  Labor, 193 

§  4.   Other  Considerations  affecting  Wages, 197 

§  5.  Wages  of  Women  —  Transfer  of  Labor  from  one  Employment 

to  another, 200 

$  6.  Effect  of  Taxes  on  Wages, 204 

CHAPTER    V. 

PROFITS. 

§  1.   Rate  Per  Cent.  — Equality  of  Profits, 206 

$2.  The  Minimum  in  Profits  —  Movement  towards  this,     .        .        .    209 


VIII  CONTENTS. 

PAGE 

§3.   Action  of  Government  on  Profits  — Of  Intelligence  — Things 

retarding  the  Movement  towards  this  Minimum,         .        .    212 

§4.   Long  and  short  Periods  of  Advance  —  Effect  on  Profits  —  On 

Capitalist  and  Laborer, 214 


BOOK    II  I. -EXCHANGE. 

§  1.   General  Statements,. 219 

CHAPTER    I. 

VALUE. 

§  1.   Value  and  Price,  what  —  How  Affected, 222 

$  2.   In  Manufactured  Commodities,  Value  regulated  by  Difficulty  of 

Attainment, 224 

§  3.  "Wages  and  Profits  affect  Value,  with  what  Limitations,  .  .  227 
§  4.   Further  Explanation  of  the  Effects  of  Profits  — Of  Machinery  — 

Of  Taxes, 230 

§  5.   Second  or  Agricultural  Class  of  Products, 233 

§  6.   Action  of  Supply  and  Demand  —  The  effort  of  Price  to  return 

to  the  Natural  Value,     .        .        .        .        .        .        .        .237 

§7.   Third  Class  of  Products, 241 

§  8.   Anomalous  Cases, 242 

§  9.   Conclusions, 244 

CHAPTER    II. 

FOREIGN    TRADE. 

§  1.  Advantages  of  Foreign  Trade, 247 

§  2.  Foreign  Trade  dependent  on  Relative,  not  Absolute,  Cost  of  Pro- 
duction,    248 

§  3.  Equation  of  International  Demand, 230 

§  4.   Carriage  explained,  in  its  Action  on  the  Equation  of  Interna- 
tional Demand, 234 


CONTEXTS.  IX 


CHAPTER    III. 

MONEY. 

PAGE 

§  1.  Office  of  Money  — Its  Advantages, 2">9 

§  2.  Qualities  demanded  in  the  Products  constituting  Money,     .        .  262 

§3.  The  Law  of  Value  —  Supply  and  Demand,            ....  203 

§  4.  Cost  of  Production  —  Other  Considerations  in  Connection  with 

Gold  and  Silver  securing  a  Stability  of  Value,     .        .        .  20-3 

§  5.  Gold  and  Silver  as  Commodities  in  Foreign  Trade,      .        .        .  270 

§  6.  Foreign  Exchange, 275 

§7.  Two  Metals  —  Advantages,  Disadvantages,  and  how  Removed,  278 

§8.  Coinage  — Rate  of  Interest, .281 


CHAPTER    IV. 

BANKS. 

§  1.   Banks  and  Brokers, 284 

$  2.   Banks  of  Deposit,  28") 

§3.   Banks  of  Issue  — Of  Deposit  and  Discount  as  connected  with 

these, 287 

§  4.   The  Function  of  Issue  or  Circulation  —  Dangers  and  Remedies,  290 

■§  5.   Circulation  not  under  the  Control  of  the  Banks,        .        .        .  30  ] 

§  6.  Source  of  Profit  in  Issues  —  To  the  Country  —  To  the  Banks,      .  307 


CHAPTER    V. 

CREDIT. 

§  1.   Gains  and  Kinds  of  Credit, 312 

§  2.   Forms  of  Credit, 316 

§  3.  Effect  of  Credit  on  Price, 318 

§4-   Evil  Results  of  High  Prices— Of  a  Credit  System,      .        .        .  322 

)  5.   Commercial  Crises, 324 

§  6.   Forces  affecting  them, 328 

1# 


C  0  X  T  K  X  T  S  . 


CHAPTER    VI. 


CURRENCY. 


§  1.  Obstacles  to  the  Improvement  of  the  Currency  on  the  part  of 

the  States, 334 

§  2.  The  best  Currency  the  most  Economical, 340 

§  3.  The  best  Currency  involves  the  least  Fluctuation,         .        .        .  343 

§  4.   Effects  of  Fluctuation, 352 

$  5.  The  best  Currency  Self-regulating, 3o4 

§  6.  Concluding  Examples  —  Absenteeism  —  Tithes,           .       .        .  300 


I  Library* 

INTRODUCTION. 


A  science  which  comes  in  contact  with  the  interests  of  men,  which 
lies  in  the  region  of  daily  action  and  desire,  will  find  its  theories 
more  frequently  questioned,  and  its  proofs  more  severely  tried,  than 
one  which  has  to  do  with  the  relations  of  abstract  ideas,  or  the  facts 
of  the  external  world.  In  reference  to  wealth,  its  acquisition,  and 
the  policy' which  should  control  and  guide  our  individual  and  na- 
tional industry,  there  have  always  been  favorite  opinions,  —  schemes 
which,  though  often  based  on  the  most  limited  views,  on  mere 
prejudices,  have  yet  arrogated  the  authority  of  experience,  and  led 
men  to  look  with  suspicion  or  contempt  on  the  best  established  prin- 
ciples, the  most  broad  and  conclusive  reasonings,  of  Political  Econ- 
omy. Even  when  forced  to  assent  to  the  proofs  and  conclusions  of 
this  science,  many  have  been  willing  to  regard  them  as  so  restricted 
by  arbitrary  and  hypothetical  premises,  as  to  be  utterly  unsafe  in 
practice ;  as  solely  theoretical ;  as  giving  hints  and  hopes,  but  not 
laws,  to  the  weighty  necessities  of  life. 

While  not  forgetting  the  occasion  which  the  inaccuracy  of  alleged 
science  has  frequently  given  to  this  feeling,  we  yet  are  sure  that  no 
attack,  open  or  furtive,  more  thoroughly  undermines  the  social 
sciences  than  this  capricious  and  arbitrary  suspension  of  their  con- 
clusions the  instant  they  affect  action.  The  meeting  of  well-ascer- 
tained tendencies  of  principles  established  by  broad  and  careful 
reasoning,  with  a  vague  charge  of  theory,  with  a  reference  to  cer- 
tain practical  exigencies,  undefined  and  unexplained,  is  declama- 
tion—  is  the  substitution  of  a  narrow  opinion  and  most  partial 
experience,  for  conclusions  deeply  established  on  observation  and 


8  POLITICAL   ECONOMY. 

human  nature.  Such  a  method,  if  defensible,  would  render  the 
most  radical  and  thorough  investigations  valueless,  and  the  careless 
affirmations  of  an  unanalyzed  experience  authoritative. 

We  readily  acknowledge  the  modifying  influences  of  circum- 
stances ;  we  only  demand  that  these  circumstances,  while  as  yet 
but  partially  apprehended,  and,  in  the  nature  and  degree  of  their 
influence,  wholly 'unestimated,  should  not  be  thrown  into  the  scale 
as  make-weights  against  clear,  accurate  reasonings,  and  inevitable 
tendencies.  We  appreciate  the  advantage  which  these  practical 
difficulties,  these  experimental  reasons,  must  ever  have  while  left 
vague  and  undefined.  They  may  vitiate  the  most  conclusive  argu- 
ment ;  they  may  set  aside  the  most  weighty  tendencies ;  indeed, 
none  can  tell  what  they  may  not  do,  for  no  one  knows  exactly  what 
they  are,  or  has  tested  their  strength.  Who  can  say  that  friction 
may  not  overcome  the  best  devised  machinery,  till  he  has  measured 
friction,  and  determined  how  great  among  the  powers  this -friction  is  ? 
But  this  friction  cannot  rightly  be  urged  against  any  demonstration ; 
it  is  obscure,  if  not  unmeaning,  declamation  to  urge  it  till  the  points 
have  been  shown  at  which  ijfc  exists,  and  its  vitiating  influence  there 
measured. 

There  are,  unquestionably,  practical  difficulties,  causes  not  esti- 
mated, in  the  theories  of  Political  Economy,  which  modify  the  re- 
sults. But  this  does  not  alter  the  fact,  that  the  proofs  of  this  science 
include  all  leading  and  permanent  forces  —  forces  that  give  direc- 
tion and  law  to  financial  movements ;  that  the  forces  not  estimated 
in  the  proof  are  transitory,  secondary,  and  accidental,  and  often 
wholly  imaginary.  Certainly,  it  is  not  wise  to  cast  aside  conclusions 
resting  on,  and  including  all,  leading  causes  —  causes  always  pres- 
ent and  always  at  work  —  unless  in  favor  of  exceptions  equally  well 
understood,  and  capable  of  a  proof  equally  complete.  It  is  admitted 
that  all  the  circumstances  of  no  one  real  transaction  will  ever  be 
found  embraced  in  the  premises  of  a  general  theory ;  but  this  does 
not  destroy,  or  at  all  modify,  the  force  of  the  theory,  so  long  as  it 
includes  all  essential  and  efficient  agencies.  Circumstances  not 
taken  into  the  estimate,  opinions,  surmises,  are  not  to  be  thrown 
across  the  path  of  proof  till  they  have  been  resolved  into  proof, 


INTRODUCTION".  9 

and  that,  too,  proof  of  a  given  denomination  —  proof  that  can  be 
weighed  with  proof. 

In  order  to  a  right  apprehension  of  Political  Economy,  and  of  the 
value  of  its  conclusions,  we  need  to  understand  its  nature  and  rela- 
tions as  a  science. 

§  1.  Political  Economy  belongs  to  the  social  sciences,  and  has  to 
deal  with  complicated  and  ever-varying  phenomena.  Individual 
characteristics,  social  characteristics,  the  circumstances  of  advantage 
and  disadvantage  acting  upon  these,  the  new  conditions  begotten 
by  their  interaction,  are  all  innumerable,  and,  in  any  given  instance, 
much  more  in  anticipation  of  all  instances,  totally  beyond  a  com- 
plete estimate.  Yet  these  phenomena,  complicated  beyond  all  ex- 
haustive analysis,  are  the  material  of  the  social  sciences.  If,  then, 
these  sciences  can  have  no  validity,  no  authority,  except  as  they 
include  and  explain  all  the  phenomena  to  which  they  pertain  and 
are  afterward  to  be  applied,  it  is  evident  they  must  be  abandoned 
as  sources  of  instruction  and  guidance,  and  be  retained  only  for 
that  discipline,  which  theories  consecutively  unfolded,  however  par- 
tial and  arbitrary,  are  able  to  afford.  But  this,  far  from  being  the 
sole,  is  but  a  very  secondary  aim  in  the  cultivation  of  the  sciences 
of  wealth,  morals,  and  government.  Notwithstanding  the  conflict- 
ing and  partial  results  of  mental  science,  with  which  these  sciences 
are  in  immediate  connection,  — notwithstanding  the  broad,  shifting 
field  of  phenomena  in  which  their  principles  find  play,  —  there  is 
yet  in  each  of  them  authority  and  guidance. 

A  science  of  wealth  is  secured,  not  by  an  effort  to  enumerate 
and  trace  in  their  effects  all  the  influences  at  work  in  its  produc- 
tion, consumption,  and  transfer,  but  only  those  which,  by  their 
prominence  and  weight,  give  direction  and  law  to  the  whole  move- 
ment. 

This  limit  of  analysis  is  assigned  us,  not  by  our  desires,  but  by 
our  abilities ;  investigation  can  only  proceed  securely  as  it  limits  the 
causes  which  it  considers  and  explains.  The  possibility,  then,  of  a 
science  of  Political  Economy  —  indeed,  of  any  social  science  —  will 
depend  on  the  question,  whether  there  are  causes  underlying  its 


/ 


10  POLITICAL   ECONOMY. 

phenomena  so  few,  as  to  be  within  the  stretch  of  inquiry ;  so  con- 
trolling, as  to  render  that  inquiry  safe  in  its  practical  deductions ; 
and  so  traceable,  as  to  give  us  their  law,  and  also  prepare  us  for 
the  exceptions. 

In  Political  Economy  these  conditions  are  fully  met  — more  fully 
than  in  any  other  social  science.  The  one  fact,  that  men  every- 
where choose  that  action  which  secures  the  most  wealth  with  the 
least  labor,  is  the  spirit  and  the  law  of  nearly  every  monetary  trans- 
action. The  three  desires  of  wealth,  or  enjoyments  which  wealth 
mediates,  of  ease,  and  of  present  as  opposed  to  future  gratification, 
require  but  little  mental  analysis  to  be  reached,  are  readily  trace- 
able through  all  their  results,  and  constitute,  not  only  the  leading 
impulses,  but  the  great  mass  of  impulse  in  pecuniary  action.  It 
matters  not  what  ultimate  end,  whether  of  appetite,  avarice,  or 
benevolence,  a  man  may  propose  to  himself  in  the  acquisition  of 
wealth,  these  desires  are  yet  the  law  of  his  effort.  Between  one 
dollar  and  two  dollars  he  has  no  choice ;  he  must  take  the  greater ; 
between  one  day  and  two  days  of  labor,  he  must  take  the  less; 
between  the  present  and  the  future,  he  must  take  the  present.  This 
is  not  a  sphere  of  caprice,  nor  even  of  liberty ;  the  actions  them- 
selves present  no  alternative,  and,  if  an  alternative  giving  an  oppor- 
tunity for  choice  does  arise,  it  arises  from  some  partial  or  individual 
impulse,  —  from  some  one  of  those  transitory  and  foreign  influences 
which,  while  rippling  the  surface,  neither  belong  to  nor  affect  the 
current  of  the  stream.  Whichever  one  of  a  thousand  motives  en- 
gages man  in  the  pursuit  of  wealth,  once  in  that  pursuit,  these  all 
conform  to  one  method,  and  acknowledge  one  law:  the  various 
causes  which  draw  men  from  production  are  overcome,  or  tend  to 
be  overcome,  by  the  same  motive,  —  success  made  most  rapid  and 
complete. 

The  universality  and  certainty  of  this  impulse,  which  leads  men 
everywhere  and  at  all  times  to  seek  in  pecuniary  transactions  the 
largest  gains,  stands  in  marked  contrast  with  the  many  influences 
and  modifying  circumstances  entering  into  moral  action,  not  only 
making  prediction  impossible,  but,  when  the  facts  have  all  trans- 
pired, rendering  it  oftentimes  difficult  to  decide  on  their  moral  char- 


INTRODUCTION.  11 

acter.  Nor  does  the  multiplicity  of  the  desires  and  counter-desires, 
which  control  the  phenomena  of  Political  Economy,  compare  less 
favorably  with  the  many  distinct  tendencies  of  a  complex,  social  life, 
which  must  enter  into  the  premises  of  every  well-established  princi- 
ple of  government. 

The  fewness  of  its  forces  and  the  steadiness  of  their  action,  place  '■■■ 
the  theories  of  Political  Economy  on  a  footing  well-nigh  as  safe  as 
those  of  mechanical  powers. 

Another  consideration  giving  strength  to  the  conclusions  of  Polit- 
ical Economy  is,  that,  however  wayward  may  be  some  acts  of  the 
individual,  however  great  the  perturbation  of  any  one  community 
in  its  assigned  orbit,  these  are  but  chance  effects  from  fluctuating 
causes,  and,  like  other  chance  effects,  in  the  end  balance  and  coun- 
teract each  other  without  modifying  the  permanent  forces. 

Political  Economy  offers  its  guidance,  not  so  much  to  each  act  of 
the  individual,  as  to  the  mass  of  his  individual  action ;  not  so  much 
to  the  individual  himself,  as  to  the  nation  of  which  he  is  a  member ; 
and,  just  in  proportion  as  the  field  increases  in  breadth  and  import- 
ance, are  the  elements  of  doubt  and  fluctuation  eliminated,  and  that 
affirmed  with  certainty  of  many  transactions,  which  might  not  be 
completely  true  of  each  transaction.  Caprice  is  so  capricious,  that 
it  does  not  resolve  itself  into  any  distinct  and  settled  tendencies,  but 
leaves  all  permanent  forces  unaffected. 

It  will  also  many  times  be  found,  that  considerations  which  have 
not  entered  into  the  estimate  of  our  theories  are  resolvable  into 
forces  acting  parallel  with  those  actually  considered,  and  thus  do  not 
demand  a  separate  consideration.  Of  this  we  shall  give  illustra- 
tions as  we  proceed. 

It  is  the  office,  then,  of  Political  Economy  to  explain  the  phe- 
nomena of  wealth  in  its  acquisition  and  circulation,  by  consecutively 
tracing  all  the  results  of  a  few  leading  and  controlling  principles 
which,  of  themselves,  give  character  and  direction  to  the  great  mass 
of  facts.  Nor  is  this  an  easy  task.  While  the  principles  guiding 
any  movement  are  few,  the  movement  once  inaugurated,  the  num- 
ber of  interests  affected  is  often  so  great,  their  mutual  actions  and 
interactions  so  complicated,  that  any  stopping  short  of  a  complete 


12  POLITICAL  ECONOMY. 

survey  of  all  results  is  sure  to  mislead ;  that  only  a  stretch  and  ten- 
sion of  thought,  able  to  embrace  and  hold  the  most  complex  phenom- 
ena, can  make  our  reasoning  safe.  The  compensation  for  an  appar- 
ent gain,  while  fully  coming,  yet  often  comes  in  so  remote  and  obscure 
a  form  as  to  escape  detection,  and  thus  to  leave  us  with  conclusions 
wholly  false.  But  these  few  principles  once  traced  to  their  com- 
plete results,  the  great  work  of  Political  Economy  is  performed. 
If  we  thoroughly  understand  the  leading  forces  and  lines  of  move- 
ment, it  is  comparatively  easy  to  apply  these  to  a  given  case ;  to 
trace  the  effects  of  the  modifying  causes  or  peculiar  circumstances 
entering  into  any  given  problem. 

Political  Economy  is  not  a  science  varying  with  climate  and 
country.  There  is  not  an  English  and  an  American  Political 
Economy  distinct  from  each  other,  and,  in  a  measure,  the  reverse 
of  each  other.  The  forces  of  human  nature,  the  agents  of  produc- 
tion, the  arithmetic  of  gains,  are  the  same  everywhere,  and  lead  to 
the  same  principles  of  economic  action.  We  may  show  the  appli- 
cation of  these  principles  to  the  existing  state  of  a  particular  nation, 
and  thus  transform  our  science  into  the  art  of  local  statesmanship ; 
but  we  are  to  remember  that  the  basis  of  science  is  the  same  with 
us  as  with  others ;  that  its  previons  conclusions  are  not  to  be  mod- 
ified save  by  causes  whose  existence  has  been  as  thoroughly  estab- 
lished, whose  law  has  been  as  completely  traced,  and  whose  force 
as  fully  estimated  as  its  own ;  and  that  there  is  no  easier  fallacy 
than  the  displacing  of  general  principles  on  the  ground  of  alleged 
peculiarities.  All  permanent  forces  lying  within  the  field  of  his 
survey,  it  is  the  office  of  the  Political  Economist  to  bring  forward 
and  calculate ;  transient  forces  —  forces  not  belonging  to,  but  affect- 
ing for  the  moment,  the  interests  of  production  —  it  is  the  office  of 
the  business  man  and  the  statesman  to  consider.  It  is  they  who  take 
the  general  conclusions  of  science  and  apply  them  to  the  varied 
facts  immediately  before  them,  remembering  that  the  use  of  a  prin- 
ciple is  not  its  suspension  or  rejection,  but  the  right  discernment  of 
its  modified  action. 

Political  Economy  is  spoken  of  as  an  experimental  science.  This 
is  a  partial,  and  only  a  partial,  truth.      We  arrive  at  all  its  data 


INTRODUCTION.  13 

through  experience.  It  is  thus  we  know  the  desires  and  tendencies 
of  men,  thus  the  natural  agents  at  his  disposal,  and  the  relation 
which  the  wants  of  the  world  bear  to  their  various  methods  of  sup- 
ply. But  these  given,  a  strict  abstract,  logical  process  can  reach, 
and  safely  reach,  many  conclusions.  We  are  not  compelled  in  each 
instance  to  learn  by  experience  how  given  causes  will  act,  how 
they  will  affect  and  modify  each  other ;  but  are  able,  through  our 
knowledge  of  these  forces,  to  predict  results,  and  to  anticipate  the 
gains  and  losses  of  a  great  variety  of  undertakings  on  which  expe- 
rience has  not  yet  pronounced.  False  methods  may  be  seen  to  be 
such,  and  right  methods  may  be  pointed  out  before  the  tardy 
teachings  of  experience  have  been  given.  Forces  are  necessitated 
and  fixed  in  their  action ;  the  calculation  of  results  is  often  mathe- ' 
matical;  and  we  need  not  go  beyond  the  closet  of  the  student  to 
know  that  capital  cannot  be  indefinitely  increased  by  banks ;  that 
money  in  its  multiplication  must  destroy  its  own  value ;  that  among 
lands,  those  which  are  regarded  as  the  best  will  be  first  taken. 

Political  Economy  has  to  do  with  facts,  but  it  has  first  to  do  with 
existing  causes  of  a  known  character,  and  mentally  traceable  in 
their  results.  The  verification  of  this  logical  process  is  the  broad 
explanation  which  it  is  able  to  furnish  to  past  and  present  facts. 
Facts  do  not  give  a  law  to,  but  find  their  law  in,  the  impulses  of  our 
nature ;  and  this  law  may  be  reached  by  tracing  the  impulse  and 
looking  to  the  facts  for  our  verification ;  and,  sometimes,  by  induct- 
ively uniting  the  facts  in  a  law,  and  looking  to  our  known  impulses 
for  its  explanation.  So  simple  and  so  free  from  caprice  are  the 
causes  with  which  Political  Economy  has  to  deal,  that  the  first  is  its 
most  common  —  its  safe  and  feasible  method  of  investigation. 

In  the  fact,  then,  that  the  forces  of  Political  Economy,  as  far  as  j 
human  nature  is  concerned,  are  few,  well  defined,  and  certain  in  "* 
their  action,  —  that  its  calculations  are  largely  those  of  mathematics, 
that  the  uncomputed  forces  are  transient,  mutually  compensatory, 
and,  in  all  extended  cases,  unimportant,  —  we  find  the  possibility  of 
its  being  a  science  accurate  and  practical.  Such  a  science  we  regard 
it  already,  and  shall  trust  to  its  presentation  for  the  proof,  delaying 
only  to  see  something  of  its  advantages  and  of  its  history. 

2 


14  POLITICAL  ECONOMY. 

§  2.  It  is  not  sufficient  to  say  that  Political  Economy,  in  common 
with  other  sciences,  exercises,  strengthens,  and  gives  training  to  the 
mind.  This  it  does  with  peculiar  efficacy  in  two  respects.  Its 
proofs  being  more  exact  and  conclusive  than  those  belonging  to  any 
other  social  science,  excepting,  perhaps,  a  few  of  the  conclusions  of 
moral  science,  it  best  prepares  the  way  for  this  whole  department 
of  investigation,  and  happily  introduces  the  student  into  a  field 
whose  phenomena  are  excessively  complicated,  whose  methods  of 
reasoning  are  peculiar,  the  generality  of  whose  logic  is  limited  by 
many  exceptions,  and  whose  questions  are  the  most  practical  and 
important  of  any  that  pertain  to  man.  The  preparatory  discipline 
afforded  by  Political  Economy  to  one  giving  himself  to  social  ques- 
tions, is  invaluable.  The  training  which  it  affords  is  also  of  peculiar 
importance  from  the  number  of  compensations,  the  complicated  sys- 
tem of  action  and  reaction  which  it  accustoms  the  mind  to  observe 
and  trace.  The  forces  at  work  seek  a  certain  balance,  a  certain 
equilibrium ;  and  when  this  is  disturbed  there  is  often  a  large  variety 
of  adjustments  and  readjustments  before  it  is  again  secured.  It  is 
not  sufficient  to  follow  single  causes ;  these  set  in  movement  other 
forces,  which,  in  their  results,  either  modify  or  wholly  compensate 
the  action  of  the  first.  The  whole  field  must  be  kept  before  the 
mind,  and  each  alteration  be  traced  in  all  its  ramifications,  in 
all  its  direct  and  indirect  effects,  till  a  second  equilibrium,  a  sec- 
ond state  of  rest,  has  been  found.  This  often  tasks  the  mind  to  the 
utmost,  and  accustoms  it  to  a  broad  survey  of  consequences.  This, 
again,  is  eminently  a  practical  discipline,  fitting  the  statesman  for  a 
wise  and  comprehensive  policy,  and  the  private  citizen  for  a  liberal 
and  strengthening  method  of  thought  and  action. 

But  the  chief  advantage  of  Political  Economy  is  not  the  discipline 
which  it  affords.  The  knowledge  which  it  imparts  is  of  an  impor- 
tant and  —  if  we  choose  to  make  that  the  test  —  of  a  most  practi- 
cal character.  Wealth  underlies  all  civilization,  and  ultimately,  v7 
therefore,  in  a  large  measure,  both  knowledge  and  religion.  It  is 
among  the  lowest,  but  also  among  the  first  steps  to  social  worth  and 
national  strength.  We  are  not  to  value  wealth  for  that  which  it  is 
in  itself,  but  for  that  to  which  it  can  be  made  to  minister.     In  its 


INTRODUCTION.  15 

retinue  come,  or  rather  may  come,  all  intellectual,  social,  and  relig- 
ious advantages.  Aught  which  helps  to  make  the  road  of  acquisi- 
tion easy  and  open  to  all,  thereby  helps  to  lift  all  into  a  higher  rank, 
and  place  at  their  command  a  larger  share  of  enjoyments  and  of 
knowledge,  and  hence,  we  may  hope,  of  virtue.  Political  Econ- 
omy, as  the  science  of  wealth,  makes  plain  the  laws  of  its  acquisition 
and  distribution,  and  if  it  does  not  open  the  path  of  the  individual, 
yet  gives  him  indisputable  principles,  according  to  which  his  action 
must  be  directed  when  once  in  that  path.  More  especially,  when 
the  interests  and  pursuits  of  large  numbers  are  to  be  affected  or 
regulated  by  legal  enactments,  these  principles  come  forward  to 
point  out  the  action  of  the  mutual  forces  at  work,  to  show  where 
legislation  is  futile,  where  pernicious,  and  where  demanded  to  sup- 
ply a  deficiency.  It  is  scarcely  necessary  to  say,  that  a  large  share 
of  legislation  relates  to  the  regulation  and  protection  of  industrial 
agents,  and  that  the  laws  of  the  forces  of  production  must  be  thor- 
oughly understood  before  this  can  be  successfully  accomplished.  In 
a  country  where,  in  theory,  every  man  is,  and  where  every  educated 
man  should  be,  his  own  statesman,  nothing  can  be  more  fit  than  a 
thorough  training  in  this  direction.  If,  even  among  those  possessed 
of  most  intelligence,  there  are  in  this  department  no  correct  and 
thorough  principles,  we  can  hardly  expect  from  the  mass  anything 
but  the  most  unsafe  and  superficial  views. 

Still  another  advantage  conferred  by  this  study  is,  that  we  are 
thereby  able  to  see  the  harmony  which  exists  between  the  interests  ! 
of  all  classes  and  all  countries.  The  competition  and  conflict  which 
are  on  the  surface  are  found  to  be  but  the  transient  foam  of  forces 
—  of  currents  uniting  to  work  the  common  weal ;  beneath,  there  is 
no  real  strife,  no  permanent  conflict  between  the  several  classes  of 
producers ;  the  highest  prosperity  of  each  can  only  tend  to  the  high- 
est prosperity  of  all.  This  remark  needs  one  qualification  ;  that, 
while  the  laws  of  legitimate  acquisition  look  to  the  good  of  all,  and 
not  to  the  plunder  of  any,  any  illegitimate  action  which  violates  a 
higher,  a  moral  law,  will  usually  violate  a  lower,  an  economic  law, 
and  measure  the  gains  of  one  by  the  losses  of  another.  There  is  a 
harmony  of.  productive  action  by  which  the  gains  of  all  are  secured, 


1G  POLITICAL   ECONOMY. 

and  the  laws  of  this  harmony  are  those  of  Political  Economy.  Inti- 
mately connected  with  this  view,  is  that  by  which  the  harmony  of 
the  lower  laws  of  acquisition  with  the  higher  laws  of  morals  is  seen, 
and  the  mutual  strength  which  they  lend  to  each  other.  The  state 
of  highest  production  not  only  may  be,  but  must  be,  the  state  of 
highest  intelligence  and  virtue  ;  and  the  highest  intelligence  and 
virtue  cannot  fail  to  be  productive  of  the  greatest  wealth.  The 
interests  of  production  are  often  seen  to  be  so  parallel  with  the  path 
of  virtue,  as  to  be  more  provocative  of  virtue  than  virtue  herself. 
The  admirable  interaction  of  the  laws  of  the  several  departments 
of  man's  social  nature,  the  mutual  support  which  they  render  each 
other,  and  the  general  concurrence  of  their  motives,  present  topics 
not  less  suggestive  of  divine  skill  than  those  of  the  external  world. 

§  3.  In  all  its  standard  works,  Political  Economy  is  comparatively 
a  modern  science.  There  was  that  pride  in  the  philosophy  of 
Greece  and  Rome  which  repelled  it  from  the  practical  and  useful. 
It  was  a  contemptuous  philosophy  that  scorned  to  clothe  and  feed 
itself,  —  a  thing  not  uncommon  with  those  who  live  on  the  labor  of 
slaves.  It  was  not  till  the  latter  part  of  the  seventeenth  century 
that  views  generally  correct  began  to  be  advanced  on  this  subject. 
During  two  or  three  preceding  centuries,  a  very  false  estimate  of 
gold  and  silver,  finally  shaping  itself  into  what  is  termed  the  mer- 
cantile theory,  had  held  possession  of  the  public  mind,  and  guided 
legislation.  This  theory,  long  after  its  overthrow  in  the  speculations 
of  the  thoughtful,  continued  to  exert  a  wide  influence.  It  regarded 
gold  and  silver  as  especially  wealth,  and  that  trade  alone  profitable 
which,  directly  or  indirectly,  resulted  in  the  importation  of  these 
metals.  The  balance  of  trade,  as  indicating  these  payments  in 
specie,  became  a  phrase  of  constant  occurrence  and  of  grave  im- 
port. With  this  false  theory  the  interest  of  the  East  India  Com- 
pany at  length  came  in  conflict,  and  the  prospect  of  an  immediate 
and  obvious  gain  was  sufficient  to  correct  the  opinions  of  interested 
parties,  and  slowly,  through  them,  of  the  commercial  world.  Nat- 
ural laws,  bringing  to  light  immediate  gains,  often  serve  to  confute  a 
false  theory  and  gradually  to  destroy  its  hold. 


INTRODUCTION.  17 

Previous  to  the  great  work  of  Adam  Smith,  "  The  Wealth  of 
Nations,"  there  were  essays  and  treatises,  by  several  authors,  con- 
taining correct  principles  and  a  thorough  handling  of  single  points. 
Earliest  among  these,  were  the  productions  of  Sir  William  Petty 
and  Sir  Dudley  North ;  also  discussions  from  the  pens  of  Hume  and 
Locke.  On  the  continent,  Quesnay  had  drawn  attention  to  agri- 
culture, and,  regarding  this  branch  of  industry  as  primarily  the 
source  of  wealth,  had  established  the  school  of  the  French  Econo- 
mists. These  efforts  were,  however,  partial  and  desultory.  It  was 
not  till  17  76  that  Political  Economy  was  fairl^  established  as  an 
independent  science  by  the  publication  of  the  "  Wealth  of  Nations." 
This  work,  while  adding  original  and  thorough  investigations  on  sev- 
eral points,  gathered  up,  corrected,  and  compacted  all  the  current 
knowledge  in  this  department,  and  gave  body  and  form  to  the  new 
science.  In  the  variety  and  importance  of  the  reasoning  employed 
and  the  principles  advanced  in  this  first  great  work  of  Political 
Economy,  none  were  left  to  doubt  either  the  breadth,  importance,  or 
scientific  character  of  the  material  in  this  department  of  thought. 
The  "  Wealth  of  Nations,"  while  containing  much  that  subsequent 
writers  have  had  but  little  occasion  either  to  enlarge  or  alter,  is 
defective  in  two  fundamental  points.  Neither  value  nor  rent  are  f  *' 
rightly  apprehended,  or  clearly  presented.  These  deficiencies,  with 
the  want  of  a  compact  and  systematic  order,  left  much  to  be  accom- 
plished by  subsequent  authors.  At  a  later  period,  Malthus  made  an 
important  contribution  to  the  science,  by  a  more  enlarged  discus- 
sion of  population  and  its  relation  to  food ;  though  his  statements, 
as  is  natural  with  one  bringing  forward  a  new  principle,  were  one- 
sided and  extreme,  demanding  the  correction  of  later  authors.  Of 
recent  additions,  the  most  original  and  important  are  those  of  Ri- 
cardo,  especially  on  the  two  subjects  of  value  and  rent,  so  inade- 
quately treated  by  Smith.  The  subtle  thoughts  of  this  author  have 
furnished  much  material  for  writers  possessed  of  a  more  clear  and 
easy  style.  Among  continental  authors,  Say  has  been  conspicuous, 
contributing  a  clear  elucidation  of  the  vexed  question  of  a  general 
glut.  A  want  of  sales  arises  from  a  want  of  purchasing  power ;  a 
universal  supply  implies  a  universal  purchasing  power,  and,  men's 

2* 


18  POLITICAL  ECONOMY. 

desires  being  unlimited,  would  result  in  unlimited  exchanges.  The 
latest  and  most  valuable  contributions  to  Political  Economy  have 
been  from  Senior,  McCulloch,  and  Mill;  the  work  of  the  last  is 
probably  the  most  clear,  complete,  and  masterly  treatise  on  the  sub- 
ject, and  well  rewards  the  careful  student. 


PRELIMINARY  PRINCIPLES. 


§  1.    Political  Economy  is  the  science  of  wealth. 

"Wealth  is  those  products  possessed  of  an  exchange  value, 
taken  singly  or  collectively :  individual  wealth  is  the  portion 
of  those  products  that  falls  to  the  individual ;  national  wealth, 
the  portion  that  falls  to  the  nation. 

Exchange  value,  or  value,  has  two  elements ;  utility,  diffi- 
culty of  attajnmejit :  these  being  present,  value  is  secured; 
either  of  them  being  absent,  is  destroyed. 

By  utility  is  meant  the  ability  of  a  product  to  gratify  any 
human  desire,  without  reference  to  the  benefit  of  such  gratifi- 
cation. It  is  a  utility  that  contemplates  solely  an  enjoyment 
to  be  secured,  or  a  pain  to  be  alleviated,  without  reference  to 
ulterior  results.  It  is  evident  that  no  object  can  possess  value 
that  does  not  appeal  to  some  one  or  other  of  the  many  parts 
of  man's  nature,  calling  it  out  in  desire :  without  such  desire, 
it  is  a  thing  of  indifference,  having  no  value,  —  no  power  to 
secure  or  reward  pursuit. 

Tins  utility  may  be  either  immediate  or  mediate. 

Those  products  have  an  immediate  utility  which  directly 
gratify  the  desires  of  the  possessor,  and  are  obtained  for  this 
consumption  on  desires.  Those  products  have  a  mediate  util- 
ity which  are  secured,  not  for  personal  consumption,  but  that 
they  may  be  exchanged  for  other  products  having  the  power 
of  immediate  gratification;    all  utility  rests  ultimately  en  a 


20  POLITICAL  ECONOMY. 

desire  in  some  way  to  be  gratified,  —  a  consumer  somewhere 
to  be  found.  So  far  as  utility  alone  is  concerned,  it  is  sufficient 
that  a  product  should  be  able  to  gratify  any  desire  in  any  per- 
son, in  order  to  its  possessing  a  value,  at  least  a  limited  and 
local  value ;  the  universality  of  the  value  of  any  product  will 
depend  on  the  number  and  universality  of  the  desires  which  it 
meets. 

The  second  element  of  value  is  difficulty  of  attainment.  It 
matters  not  how  many  offices  a  thing  may  subserve,  it  can 
have  no  value  unless  it  is  also  subject  to  some  limitation. 
Nothing  can  exceed  air,  light,  water,  in  the  variety  and  im- 
portance of  the  ends  to  which  they  minister,  and  yet  nothing 
is  usually  more  valueless  than  these  elements.  Light,  supera- 
bundant and  prodigal,  costs  no  man  anything.  Recreate  him- 
self, his  fields  and  his  flocks,  as  much  as  he  will  in  it,  he 
thereby  opposes  no  obstacle  to  his  neighbors  in  the  same  luxu- 
rious enjoyment.  Each  draws  at  will  from  the  unbounded 
store,  and  the  very  freeness  of  the  gift  destroys  its  exchange, 
as  it  often  does  its  moral  value.  Where  no  natural  obstacle  is 
to  be  overcome,  and  men  can  oppose  no  artificial  one  in  the 
attainment  of  any  desired  object,  it  is  evident  that  each  will 
help  himself  according  to  his  own  desire,  and  that  such  an 
article  can  have  no  exchange  value. 

Difficulty  of  attainment  is  equivalent  to  limitation  of  supply, 
—  the  difficulty  causing  and  measuring  that  limitation.  The 
greater  the  difficulties  to  be  overcome,  the  fewer  will  be  the 
instances  in  which  they  are  overcome,  and  the  less  the  supply. 
There  is,  with  all  objects  of  value,  this  barrier  of  difficulties 
which  encloses  them,  and  is  to  be  surmounted;  its  height 
measures  the  exertion,  limits  the  supply,  and  hence  determines 
the  value  that  will  attach  to  that  limited  supply. 

That  which  has  no  value  at  one  time  or  in  one  place,  may 
have  a  high  value  at  another  time  or  in  another  place.     Most 


PRELIMINARY  PRINCIPLES.  21 

countries  are  so  favored  with  water  that  it  has  no  value ;  yet, 
in  a  large  city,  or  in  a  parched  land,  or  in  time  of  drought,  it 
may  bear  a  price,  and,  if  the  supply  be  greatly  limited,  a  very 
high  price.  In  an  oasis,  water  might  bear  a  stated  value.  If 
an  artesian  well  were  to  be  sunk,  increasing  the  supply,  the 
value  would  immediately  fall ;  and  if  the  experiment  were  so 
successful  as  to  make  the  supply  henceforward  exceed  the 
want,  and  thus  practically  unlimited,  water  would  immediately 
lose  all  value,  and  the  owner  would  forfeit  his  remuneration, 
unless  able  to  restrain  the  stream  gushing  but  too  freely  from 
his  well. 

The  supply  of  the  same  article  may  be  limited  for  one  pur- 
pose and  not  for  another,  and  thus  have  value  in  one  respect 
and  not  in  another.  Water  may  be  restricted  as  affording 
water  privileges,  and  not,  as  affording  irrigation  ;  or  it  may  be 
restricted  as  affording  irrigation,  and  not,  as  affording  drink ; 
and  thus  in  one  of  these  uses  have  value,  and  not  in  another. 

§  2.  Difficulties  of  attainment  are  of  two  classes:  those 
which  arise  from  the  labor  to  be  expended  in  securing  a  pro- 
duct, and  those  which  arise  from  the  limited  quantity  of  the 
article  or  agent  sought  for.  Manufactured  articles  are  exam- 
ples of  the  first  class,  —  difficulty  of  attainment  here  consisting 
in  the  amount  of  exertion  to  be  put  forth,  of  skill  to  be  em- 
ployed in  their  production.  This  is  the  element  of  labor 
which  so  widely  enters  into  the  value  of  nearly  all  products. 
Gems  are  examples  of  the  second  class.  It  is  not  the  labor 
which  a  particular  gem  has  cost,  when  actually  secured,  which 
gives  it  its  value,  for  this  labor  is  not  unfrequently  trifling ; 
nor  is  it  the  labor  which  has  been  expended  by  others  in  un- 
successful pursuit,  for  this  itself  is  the  effect  of  a  deeper 
cause ;  but  it  is  the  very  limited  quantity  of  gems  which  the 
world  furnishes,  —  thus  enabling  them  to  gratify  man's  love  of 


22  POLITICAL   ECONOMY. 

rank  and  distinction,  and  to  secure  an  appreciation  wholly 
independent  of  the  labor  which  they  may  have  cost.  If  the 
number  of  diamonds  were  to  diminish  one-half,  but  this  limited 
supply  were  henceforth  to  be  furnished  without  any  labor,  they 
would  not  fall,  but  greatly  rise  in  value.  Another  example  is 
that  of  land.  The  be.-t  land  is  furnished  in  but  limited  quan- 
tities, and  though  for  a  time  these  limitations  are  not  felt,  and 
it  bears  no  value,  the  processes  of  human  progress  are  hardly 
commenced  before  obstacles  to  possession  begin  to  arise.  Soil 
of  the  first  quality  is  exhausted,  and  value  attaches  to  posses- 
sion, —  a  value  to  be  increased  with  each  fresh  limitation  in 
the  supply.  The  same  is  true  of  all  natural  agents.  The 
number  of  water  privileges  is  restricted,  and  they  soon  come 
to  bear  a  price.  Each  one  occupied,  still  further  restricts  the 
number  and  enhances  the  price. 

Of  the  elements  of  value,  it  is  difficulty  of  attainment  that 
especially  measures  and  determines  value  in  all  its  degrees, 
and  this  whether  the  limits  of  production  are  assigned  by  the  la- 
bor to  be  expended  or  by  the  rarity  of  the  article  to  be  secured. 
If  only  a  certain  amount  of  difficulty  were  to  be  overcome,  a 
certain  amount  of  labor  to  be  employed,  in  securing  a  yard  of 
cotton,  the  utility  of  cotton  fabrics  might  then  be  greatly  en- 
hanced, the  number  of  purposes  for  which  they  are  employed 
—  and  thus  the  consumption  —  be  largely  increased,  without 
permanently  raising  their  value.  So,  too,  on  the  same  suppo- 
sition, the  consumption  might  fall  to  almost  nothing  without 
diminishing  their  value.  If  the  products  of  the  globe  had  at 
any  one  time  been  bestowed  without  labor  on  those  who  actu- 
ally possessed  them,  as  the  boundary  of  supply  assigned  by 
the  difficulty  of  attainment  would  not  thereby  have  been 
affected,  value  would  not  have  been  altered. 

§  3.     Though  utility  and  difficulty  of  attainment  are  the 


PRELIMINARY    PRINCIPLES.  2d 

two  elements  of  value,  they  are  so,  not  simply  of  themselves, 
but  by  virtue  of  that  which  they  either  presuppose  or  involve. 
Utility  involves  the  existence  of  the  desire  and  of  the  object 
gratifying  the  desire,  and  that  the  difficulty  of  attainment  is 
not  so  great  in  comparison  with  the  strength  of  the  desire  as 
to  preclude  the  effort  requisite  for  acquisition.  A  diamond 
has  utility,  but  not  a  diamond  at  the  centre  of  the  earth. 
Wheat  has  utility,  but  not  wheat  in  all  places,  or  at  all  dis- 
tances from  the  consumer.  Gold  has  utility,  but  not  a  gold 
mine  too  barren  to  be  worked. 

Limitation  of  supply,  the  result  of  difficulty  of  attainment, 
involves  an  ability  to  appropriate  this  limited  supply,  and  thus 
the  capability  of  transfer,  on  the  part  of  those  having  secured 
the  possession  of  any  given  article.  Transferableness  is  not 
an  independent  element  of  value,  but  is  involved  in  the  two 
already  given.  If  an  article  is  limited  in  supply,  but  not  ca- 
pable of  appropriation, —  as  fish  still  at  large  in  a  public  fish- 
ing-ground,—  there  is  indeed  no  possibility  of  transfer,  and  no 
value,  but  there  is  also  no  utility.  It  is  not  till  the  fish  can  be 
appropriated,  till  they  are  caught,  that  the  utility  arises,  and 
then  the  ability  to  transfer  one's  possession  is  instantly  in- 
volved. Utility  presupposes  that  the  useful  object  can  be 
appropriated  to  the  gratification  of  desire ;  the  limited  supply 
excludes  all  from  a  free  participation  in  this  gratification ;  and 
hence  that  which  has  been  so  appropriated  in  preparation  for 
consumption  is,  from  these  two  elements  alone,  transferable  and 
possessed  of  value. 

There  is  one  class  of  products  constituting  one  form  of 
wealth,  in  reference  to  which  the  power  of  appropriation  does 
not  involve  that  of  transfer :  it  is  that  of  skill,  knowledge,  and 
all  personal  qualities.  These  are  not  directly  exchangeable, 
and  can  only  be  said  to  possess  value  on  the  ground  of  the 
transferableness  which  belongs  to  their  products  and  services, 
and  thus  mediately  to  themselves. 


*:i 


POLITICAL    ECONOMY 


"Where  the  supply  is  unlimited,  the  acts  of  appropriation 
and  of  consumption  are  usually  the  same.  In  each  successive 
breath  we  possess  ourselves  of  air  and  consume  it.  The 
water  we  take  from  a  spring,  a  stream,  we  often  secure  and 
employ  in  the  same  instant.  But  in  products  limited  in  sup- 
ply, the  possession  precedes,  and  usually  with  long  intervals, 
the  consumption.  These  periods  involve  the  possibility  of 
transfer,  and  are  largely  attended  with  it. 

There  is  also  presupposed  by  these  elements  of  value  a  state 
of  society  which  protects  both  the  possession  and  transfer  of 
property. 

The  phenomena  of  wealth  have  relation  to  the  production 
of  values,  their  distribution  among  the  producers,  and  the  con- 
ditions and  means  of  their  exchange. 

Political  Economy  may  again  be  defined,  as  the  science  of 
values  —  their  production,  distribution,  and  exchange. 


U 


POLITICAL   ECONOMY. 


BOOK    I. 

PRODUCTION. 


CHAPTER    I. 

GENERAL  PRINCIPLES  OF  PRODUCTION. 

$  1.  Nature,  though  liberal  in  her  gifts,  seldom  puts  them 
in  that  form  in  which  they  are  ready  for  immediate  consump- 
tion. There  is  in  them  the  possibility  of  food,  rather  than 
food  itself;  the  possibility  of  clothing,  rather  than  clothes 
themselves ;  and  the  possibility  of  adequate  shelter,  and 
not  that  shelter  itself.  Of  those  things  which  are  furnished 
entirely  ready  for  use,  all,  or  nearly  all,  are  regarded  as  com- 
mon property,  not  to  be  exclusively  appropriated  by  any. 
Berries  and  other  wild  fruits  every  man  gathers  for  him- 
self, and  it  is  not  till  they  have  been  transformed  and  mul- 
tiplied by  culture  that  a  well  recognized  possession  and 
value  attach  to  them.  The  common  sentiment  of  men 
claims  wild  game  as  belonging  to  all,  and  resents  as  tyran- 
nical the  effort  of  any  class  to  restrict  to  themselves  ani- 
mals which  have  not  been  bred  or  protected  by  them. 
When  an  ability  to  appropriate  these  natural  gifts  exists,  it 
exists  as  incident  to  the  possession  of  land. 


26  POLITICAL   ECONOMY. 

There  is  then,  everywhere,  occasion  for  the  labor  of  man 
in  effecting  those  changes  by  which  the  materials  about 
him  are  fitted  for  his  use  and  enjoyment.  Those  transfor- 
mations are  very  various  in  their  character  —  involving 
labor  in  very  different  quantities,  and  in  proportions,  as  re- 
gards ultimate  value,  very  different.  Some  products,  as  the 
precious  metals  and  the  precious  stones,  owe  almost  their 
entire  value  to  the  worth  of  the  material ;  others,  as  laces 
and  India  shawls,  to  the  labor  which  has  been  expended 
upon  them.  Sometimes,  in  the  imparting  of  value,  the 
direct  agency  is  that  of  man,  and  the  indirect  agency  that 
of  nature,  and  sometimes  the  reverse.  In  all  mechanical 
processes,  man  is  the  leading  agent.  Nature  furnishes  the 
wool,  but  man  shears,  washes,  spins,  and  weaves  it,  till  in 
the  final  product  nature  seems  to  have  ministered  to  the 
processes  of  man,  rather  than  man  to  those  of  nature.  Not 
so  in  agricultural  and  chemical  processes.  Here  man  pre- 
pares the  way  and  meets  the  necessary  conditions  ;  but  the 
act  itself  of  growth,  or  molecular  transformation,  on  which 
the  ultimate  value  primarily  depends,  is  that  of  nature. 
Man  may  water  the  seed,  but  its  living  forces  are  not  his 
nor  the  sun  which  quickens  them.  He  may  put  the  iron 
in  the  furnace,  but,  if  it  become  steel,  it  does  so  by  another 
power  than  his,  which  he  has  learned  to  employ,  through 
that  mechanical  arrangement  of  materials  which  prepares 
the  way  for  its  working.  Indeed,  all  man's  direct  agency 
in  production  is  analyzable  into  a  mechanical  transfer  of 
particles,  —  all  else  being  the  work  of  nature,  of  which 
he  is  thereby  able  to  avail  himself. 

Production  is  the  occasioning  those  changes  in  matter  or 
in  mind  which  have  value. 


PRINCIPLES   OF   PRODUCTION.  27 

This  change  is  a  product,  and  these  products  are  divisi- 
ble into  two  classes,  —  services  and  commodities. 

This  division  of  products  marks  a  convenient  distinction, 
yet  one  whose  outline  it  is  sometimes  difficult  to  trace. 
The  changes  produced  in  matter  by  some  actions  are  vague 
and  indeterminate,  and  hence  the  attention  is  primarily 
directed  to  the  action,  which  is  more  appreciable  and  deter- 
minate. In  these  cases,  the  value  and  the  recompense 
attach  to  the  action  itself,  the  results  of  that  action  existing 
in  a  form  in  which  it  is  difficult  or  impossible  to  appreciate 
them.  A  service,  then,  is  that  action  which,  without  pro- 
ducing a  definite  change  or  corresponding  increase  of  value 
in  the  material  on  which  it  is  employed,  is  itself  possessed 
of  an  exchange  value.  The  brushing  of  a  coat,  the  cleans- 
ing of  a  house,  the  washing  of  a  plate,  add  no  appreciable 
value  to  these  articles,  —  produce  no  new  transformation 
by  means  of  which  an  advanced  price  can  be  realized  : 
these  services  are  themselves  products,  and  bear  a  value. 
Thus  it  is  with  the  imparting  of  skill  and  knowledge. 
There  are  here  no  results  that  can  be  appropriated  by  the 
teacher.  The  act  of  instruction  itself  is  his  product,  and 
this  alone  is  he  able  to  bring  to  the  market  or  sell  in  the 
market. 

At  other  times,  the  changes  occasioned  in  matter  by 
production  are  definite,  and  precisely  measure  the  labor 
which  has  been  employed,  are  capable  of  ready  appropria- 
tion, and  enhance  to  their  full  extent  the  value  of  the  ma- 
terial in  which  they  have  been  wrought.  In  these  cases, 
the  results  of  action  remain  in  a  distinct,  condensed  form, 
and  the  attention  is  mainly  drawn  to  the  new  commodity 
before  us. 


V 


28  POLITICAL   ECONOMY. 

A  commodity,  then,  is  the  material  on  which  labor  has 
been  employed,  and  which  now  possesses  a  new  value. 

Leather  is  transformed  into  boots,  cotton  into  cloth,  and 
cloth  into  a  garment.  Each  change  is  productive  of  a  new 
value,  measures  that  value,  and  secures  it  in  a  commodity 
from  which  by  exchange  it  can  be  realized. 

These  distinctions  now  marked,  if  not  in  all  cases  en- 
tirely definite,  are  nevertheless  sufficiently  so  to  subserve  a 
valuable  purpose.  This  division  marks  the  origin  of  many 
new  words.  The  changes  in  matter  which  constitute 
commodities  are  usually  of  so  decided  and  appreciable  a 
character  as  to  give  rise  to  names.  The  iron  just  dug  from 
the  earth,  is  ore  ;  passed  through  the  furnace,  it  is  pig- 
iron  ;  still  further  refined,  it  is  bar-iron ;  and  yet  further 
modified,  it  is  the  knife,  the  axe,  the  scythe. 

Those  changes  in  matter  which  accompany  services, 
seldom,  on  the  other  hand,  receive  distinct  names  :  a  horse 
curried  is  still  a  horse  ;  an  axe  sharpened  is  still  an  axe. 

$  2.  The  action  which  results  in  a  service  usually  ex- 
pends its  utility  —  its  ability  to  gratify  desire  —  at  once  ; 
the  very  producing  of  the  service  involving  immediate 
consumption. 

Instruction  is  received  at  the  time  in  which  it  is  imparted, 
and  the  requisite  effort  and  time  of  the  teacher  is  then 
consumed.  No  sooner  is  a  meal  set  in  order  than  con- 
sumption commences,  and  its  utility  begins  to  be  expended. 
But  that  action  which  results  in  a  commodity,  stores  itself 
in  preparation  fur  a  future  consumption,  which  may  be  in- 
definitely postponed  according  to  the  nature  of  the  com- 


PRINCIPLES    OF   PRODUCTION.  29 

modity.  There  are,  however,  certain  services  which  unite 
themselves  to  commodities,  and  are  virtually  consumed  and 
paid  for  in  connection  with  the  consumption  of  the  com- 
modity. 

Such  a  service  is  that  of  the  watchman  who  protects  a 
cotton  factory  from  fire.  It  weaves  itself,  an  inextricable 
thread,  into  the  ultimate  cost  of  the  cotton  fabric. 

The  fundamental  proposition  of  production  —  that  which 
marks  the  force  underlying  and  controlling  all  its  phe- 
nomena —  is  the  following : 

Every  man  desires  to  obtain  wealth,  and  this  with  the  least  sacrifice. 

This  proposition  hardly  demands  proof.  Its  first  clause 
is  but  little  more  than  the  safe  assertion,  that  man  is  pos- 
sessed of  desires ;  for,  of  his  ten  thousand  desires,  there 
are  few  that  do  not,  in  their  gratification,  directly  or  indi- 
rectly involve  the  securing  of  some  value  —  the  attainment 
of  some  wealth.  Wealth  mediates  between  desire  and  the 
object  of  that  desire,  and  unites  the  two  in  that  possession 
and  appropriation  in  which  lies  the  enjoyment.  There  are 
few  enjoyments  so  immaterial  as  to  require,  neither  for 
their  existence,  their  enhancement,  nor  their  perpetuity,  a 
commodity  from  earth  or  a  service  from  man.  The  desire 
impelling  acquisition  may  be  a  sordid  avarice,  a  love  of 
social  position,  of  the  leisure  and  instruments  of  culture, 
or  of  enlarged  benevolence,  yet  the  means  remain  the 
same  ;  wealth  in  some  of  its  degrees  or  forms  is  still  the 
instrument  of  gratifying  desire.  Nor  does  it  at  all  follow 
from  this,  that  the  aims  of  commerce,  which  have  super- 
seded those  of  war  and  physical  strength,  are  the  ultimate 

3* 


30  POLITICAL    ECONOMY. 

ends  of  society.  These  in  their  tarn  are  to  be  left  behind 
as  ends,  though  not  as  means.  Wealth  will  ever  be  an 
indispensable  means  to  the  highest  development  of  the 
race. 

The  end  of  all  production  is  consumption  ;  in  this  lie 
the  motive  and  spring  of  effort.  It  is  not  consumption 
itself,  but  only  that  wasteful  and  precipitate  consumption 
which  limits  and  straitens  production,  that  meets  censure 
in  the  principles  of  Political  Economy.  It  is  only  with 
the  reflex  effect  of  consumption  upon  production  that 
Political  Economy  has  to  do;  all  else  comes  under  the 
higher  principles,  regulating  moral  and  social  action. 

The  question  of  our  present  science  is,  how  values  may 
best  be  created,  not  how  they  may  be  rightfully  employed. 

Consumption  is  the  appropriation  of  an  object  to  the 
gratification  of  desire.  It  may  occupy  very  different  pe- 
riods of  time,  being  completed  in  seconds,  or  stretching 
through  centuries.  Consumption  is  usually  divided  into 
two  kinds  —  productive  and  unproductive.  The  last  has 
already  been  defined,  as  consumption  proper.  It  is  a  use 
which  gratifies  desire  with  no  ulterior  product  in  view.  It 
is  a  true  destruction  of  value.  The  products  so  consumed 
may  indeed  renew  the  strength  and  quicken  the  spirits, 
and  thus  lead  to  fresh  production  ;  but  this  is  not  the  aim 
of  true  consumption.  Men  do  not  live  to  labor,  but  labor 
to  live. 

Productive  consumption  is  the  use  of  one  product  to 
obtain  a  second.  The  tools  of  the  trades,  the  machinery 
and  building  of  the  various  manufactories,  are  so  consumed, 
It  has  npne  of  the  characteristics  of  real  consumption.     It 


PRINCIPLES   OF  PRODUCTION.  SI 

is  an  inseparable  part  of  production,  and,  however  numer- 
ous and  various  may  have  been  the  values  destroyed,  they 
all  reappear  in  the  final  product,  and  there  await  a  true 
consumption. 

The  proposition,  that  all  men  desire  wealth,  is  incon- 
sistent with  the  occurrence  of  a  general  glut.  Some  have 
supposed  such  a  thing  possible  ;  it  is  plainly  impossible. 
A  partial  glut  is  a  thing  of  constant  occurrence.  The  pro- 
duction at  single  points  may  exceed  the  desire,  either  ab- 
solutely, or,  what  is  much  more  common,  relatively. 

A  book  to  the  full  extent  of  the  edition  issued  may  not 
anywhere  be  wanted,  or  may  be  wanted  much  less  than 
other  things.  The  desire,  again,  may  exist  without  the 
ability  of  purchase,  and  thus  the  product  be  left  without 
a  consumer. 

But  neither  of  these  states  can  at  one  time  exist  in 
reference  to  all  products.  The  supposed  superabundance 
in  all  departments  of  production  involves  the  ability  of 
purchase  by  exchange,  and  nothing  could  more  contravene 
all  experience  than  to  suppose  all  men  satisfied  with  what 
they  possess,  and  equally  destitute  of  wants  and  of  desires. 

$  3.  The  sacrifices  which  are  requisite  to  production  arc 
those  of  ease  and  of  present,  as  opposed  to  future,  enjoyment. 
However  agreeable  certain  kinds  of  activity  may  be,  labor, 
as  labor,  is  not  agreeable  to  man.  Taken  in  connection 
with  the  ends  which  it  reaches,  and  the  feelings  of  self- 
support,  self-rule,  and  self-discipline  which  accompany  it, 
it  is  not  generally,  within  certain  limits,  irksome.  But  the 
moment  those  ends  and  feelings  are  wanting,  it  becomes 


32  POLITICAL   ECONOMY. 

excessively  burdensome,  and  requires  the  most  stringent 
regulations  of  slavery  to  secure  it  in  any  tolerable  degree. 
Men  do  not  rejoice  in  labor  except  in  connection  with  the 
rewards  of  labor,  nor  adopt  a  more  when  a  less  laborious 
method  is  open  to  them. 

So  also  the  future  stands  with  men  in  unfavorable  con- 
trast with  the  present.  The  one  is  a  bird  in  the  hand,  the 
other,  a  bird  in  the  bush.  They  demand  some  compensa- 
tion for  surrendering  the  present  hour  and  taking  a  draft 
on  the  future.  He  who  abstains  from  enjoying  the  prod- 
ucts of  to-day,  and  employs  them  in  production,  expects 
that  they  will  return  increased  in  quantity,  and  this  increase 
is  the  price  of  delay.  These  obstacles  to  production  — 
man's  love  of  ease  and  of  the  present  —  vary  greatly  in 
different  states  of  society.  In  any  community,  the  force 
available  in  production  —  the  excess  of  desires  over  coun- 
ter-desires —  will  vary  directly  with  its  intellectual,  social, 
and  religious  culture. 

The  number  of  products  offered  to  the  desires  in  an 
enlightened  community  and  in  a  barbarous  one  is  very 
different:  their  connection  with  social  position,  and  the 
facility  with  which  they  may  be  obtained,  are  also  very 
different. 

Desire  is  quickened  by  civilization  in  a  thousand  direc- 
tions, and  obstacles  removed  in  as  many.  Exertion  is 
made  less,  and  gratification  is  made  greater,  and  though  the 
gross  sum  of  labor  is  greatly  increased,  enjoyments  are 
increased  in  a  much  larger  measure.  An  enlarged  comfort, 
fashion,  taste,  science,  religion,  have  all  their  pleasures  and 
facilities,  and  no  spirit  is  so  sluggish  as  to  find  itself  alto- 
gether at  rest  amid  their  importunity. 


PRINCIPLES    OF   PRODUCTION.  33 

Science  enlarges  the  vision,  and  brings  within  it  more 
objects  that  can  be  made  to  minister  to  enjoyment.  Art, 
following  on  apace,  makes  easy  the  methods  of  attainment. 
Social  refinement  makes  imperative  the  possession  of  those 
products  which  are  the  decencies  of  station.  Individual 
education  trains  to  activity,  spreads  far-reaching  motives 
through  all  action,  and  overcomes  the  obstacles  to  produc- 
tion by  a  high  and  indomitable  purpose.  General  educa- 
tion transfers  the  impulse  of  the  individual  to  the  commu- 
nity, and  in  reaction  restores  it  again  in  fresh  strength  ;  each 
offers  to  all,  and  all  to  each,  new  products  ;  and  a  common 
knowledge  and  sense  of  common  interests  secure,  or  strug- 
gle to  secure,  that  equality  of  rights  and  safety  of  posses- 
sion which  are  indispensable  to  all  extensive  production. 

The  effect  of  culture  in  substituting  future  for  present 
enjoyment  is  very  marked.  The  savage  will  hardly  sow 
the  seed  whose  increase  is  to  be  gathered  in  the  coming 
fall ;  the  half-civilized  will  plant  with  reluctance  the  fruit- 
tree  whose  produce  it  requires  but  a  few  years  to  secure  ; 
those,  whose  conception  of  periods  and  the  relations  of 
things  has  been  enlarged  by  culture,  cheerfully  plant  for- 
ests, drain  lands,  and  perform  many  labors,  the  benefit  of 
which  will  be  but  partially  secured  in  their  own  generation. 

Increased  products  are  the  wages  of  increased  culture, 
and  mark  the  victory  of  man,  both  in  thought  and  in  act, 
over  matter.  The  three  instruments  of  production  are, 
natural  agents  —  nature's  contribution  ;  labor  —  man's 
contribution  ;  and  capital — the  products  arising  from  these, 
themselves  reserved  and  employed  in  production. 


CHAPTER    II 


NATURAL   AGENTS. 


$  1.  A  natural  agent  is  anything  which  can  be  appropri- 
ated, and  is  possessed  of  a  productive  power,  derived  from 
nature  and  not  from  man.  This  term  includes  every  man- 
ageable and  productive  force  in  the  world,  save  man  alone. 
Of  the  forces  in  nature  of  which  we  avail  ourselves,  — 
while  all  are  inherent  in  matter,  and  through  its  appropri- 
ation are  made  serviceable,  —  some  are  inseparably  con- 
nected with  a  product,  and  have  no  power  beyond  the  one 
product  to  which  they  give  value.  Such  are  all  the  use- 
ful qualities  of  commodities ;  the  firmness  of  timber,  the 
hardness  of  steel,  the  chemical  action  secured  by  the  in- 
gredients of  any  compound.  Other  forces  give  rise  to  inde- 
pendent products,  and  are  not  themselves  lost  in  those 
products.  The  horse  produces  a  service  without  being 
destroyed  by  that  service.  These  alone  are  strictly  pos- 
sessed of  a  productive  power,  and  alone  are  natural  agents, 
•f  Natural  agents  are  divisible  into  two  classes,  —  those 
productive  of  material,  and  those  productive  of  power. 
The  first  of  these  classes  is  the  most  important,  and  chief 
among  its  agents  is  land.  The  earth  is  the  great  producer, 
and  its  products  are  preeminently  produce,  affording  that 
material  on  which  man's  labor  employs  itself,  and  which 


NATURAL  AGENTS.  35 

lies  at  the  centre  of  all  commodities  as  their  substance  and 
source  of  their  qualities. 

The  value  of  land  as  a  productive  power  depends  on 
two  things,  —  its  fertility  and  its  location.  In  the  first  re- 
spect, there  is  every  variety,  from  the  rich  alluvial  plain  to 
the  ragged  mountain  and  sandy  desert;  and  in  each  vari- 
ety, as  far  as  fertility  alone  is  concerned,  there  is  a  corre- 
sponding difference  of  value.  But  it  is  the  second  element 
which  occasions  the  widest  distinctions  in  the  productive 
power  of  different  lands,  and  causes  their  value  to  pass  to 
the  highest  point.  Certain  causes  determine,  or  have 
already  determined  on  each  country  and  continent,  the 
centres  of  commerce  and  of  human  life.  These  centres 
remaining  the  same,  value  in  land  will  increase  as  we 
approach  them  and  shade  out  as  we  leave  them.  Dis- 
tance and  difficulty  of  approach  may  overcome  the  greatest 
fertility,  and  render  the  best  lands  valueless.  The  neigh- 
borhood of  a  large  city  may  impart  to  comparatively  poor 
lands  a  high  value. 

Land  as  a  natural  agent  subserves  two  purposes,  in  one 
of  which  the  range  of  value  is  much  broader  and  more 
striking  than  in  the  other.  The  first  is  in  affording  posi- 
tions for  buildings,  the  second  is  in  affording  arable  sur- 
faces. For  the  first  use,  much  the  greater  portion  of  the 
world  has  no  value  —  the  localities  being  but  rare  which, 
by  their  relations  to  commerce  or  by  their  beauty  of  po- 
sition, have  an  extra  utility,  and  thus  an  extra  value.  But 
the  scale  of  valuation,  expressing  the  relations  of  different 
positions  as  fitted  for  buildings,  not  only  passes  up  abruptly, 
but  also  to  a  great  height,  with  no  definite  limitations ; 


36  POLITICAL   ECONOMY. 

square  feet  now  securing  a  measurement  more  accurate 
than  that  of  acres  of  the  most  fertile  land  employed  solely 
for  tillage. 

For  the  second  use,  the  larger  part  of  land  has  a  value, 
—  the  two  elements  of  fertility  and  ]X)sition  uniting  to 
establish  a  scale  of  values  with  differences  comparatively 
regular  and  slight. 

The  effect  of  increased  facilities  of  communication  is 
also  very  different  on  the  value  of  land  as  employed  in 
one  or  the  other  of  these  uses.  Highways,  canals,  and 
railroads,  all  converge  to  the  central  points,  —  are  ever 
bearing  more  and  more  to  them,  and  taking  more  and 
more  from  them.  The  city  thus  extends  its  competition 
over  tracts  wider  and  wider;  all  are  placed  in  easy  com- 
munication with  it,  and,  by  those  facilities  which  first 
gave  it  its  preeminence,  together  with  those  other  facilities 
which  always  belong  to  a  great  city,  it  increasingly  draws 
the  wealth  of  the  nation  to  itself,  and  becomes  more  than 
ever  its  heart.  By  increased  ease  of  intercourse,  places 
which  were  before  the  centres  of  a  narrow  trade,  are 
brought  into  competition  with  each  other,  and  those  whose 
natural  advantages  are  preeminent,  and  which  are  there- 
fore already  in  the  advance,  quickly  outstrip  their  neigh- 
bors, and,  by  the  conveniences  of  a  larger  market,  draw 
much  business  that  was  before  local  to  themselves.  It 
is  evident  that,  through  these  results,  lands  designed  for 
buddings  will  differ  from  each  other  in  value  more  widely 
than  ever,  —  those  of  the  metropolis  passing  up  to  un- 
imagined  prices,  and  those  of  the  country  and  the  villages 
suffering,  though  not  perhaps  an  absolute,  yet  a  relative 
depression.     The  effect  on  lands  employed  in  agriculture 


NATURAL    AGENTS.  37 

will  be  very  different.  Farms  which,  before  the  intro- 
duction of  railroads,  were  able,  by  their  proximity  to  a 
city,  to  command  its  market  in  those  articles  which  are 
rapidly  perishable,  and  thus  greatly  to  enhance  their  own 
value,  after  the  metropolis  has  wedded  itself  to  the  whole 
country  by  these  new  links,  are  no  longer  able  to  control 
its  trade,  but  are  forced  into  a  wide  competition,  rapidly 
reducing  profits.  Milk,  fruits,  and  fresh  produce  of  every 
kind,  are  rolled  in,  each  morning,  from  a  distance  of  many 
scores  of  miles,  and  the  supply  is  better,  much  larger, 
and  cheaper.  As  the  result  of  this,  land  is  less  affected 
by  its  position,  and  its  value  depends  more  exclusively  on 
its  fertility. 

The  advantages  of  agriculture  are  more  evenly  divided, 
and  the  power  of  land  being  everywhere  more  available, 
its  gross  value  as  a  productive  agent  is  increased,  and  the 
differences  of  value  between  its  different  portions  is  dimin- 
ished. 

$  3.  It  is  only  land  as  yielding  the  various  products  of 
husbandry,  that  demands  our  further  attention ;  and  in  this 
connection  the  principal  proposition  is  the  following : 

Of  the  labor  employed  in  any  given  agricultural  district,  the  first 
portion  is  the  most  productive,  and  each  succeeding  portion  is  less    I 
productive  than  that  which  preceded:  the  same  is  true  of  this  labor  j 
assisted  by  any  given  improvements. 

If  six  men  are  employed  upon  a  farm  for  one  year, 
the  produce  will  bear  a  larger  ratio  to  the  labor  expended, 
than  it  will  if  twelve  men  are  employed  on  the  same 
farm  for  the   same   time.      This  principal   proposition  — 

4 


o8  POLITICAL   ECONOMY. 

marking  the  most  important  law  of  agricultural  products 
—  is  equally  true,  whether  the  soil  of  the  given  district 
has,  or  has  not,  been  all  occupied. 

The  lands  of  any  territory  are  capable  of  being  so  ar- 
ranged along  a  scale  of  values,  that  the  position  assigned 
to  each  will  mark  its  productive  force.  The  strength  of 
the  soil,  the  supply  of  water,  the  position  in  reference  to 
markets,  are  all  items  readily  estimated,  readily  balanced, 
and  uniting  to  determine  for  each  farm  a  position  and  a 
value  in  reference  to  all  others.  If  such  a  scale  were 
actually  established,  it  would  mark  the  differences  which 
here,  as  elsewhere,  exist  in  the  gifts  of  nature;  and  no 
sooner  should  population  enter  the  given  district  than  the 
most  valuable  gifts,  that  is  to  say,  the  farms  possessed 
of  the  largest  productive  force,  would  be  immediately 
appropriated,  and  each  successive  occupation  would  mark 
a  movement  downward  in  the  scale  of  values.  He  who 
came  first  would  obtain  the  best ;  he  who  came  last  would 
obtain  the  worst.  In  all  new  settlements,  every  man, 
quickened  by  his  own  interests,  according  to  his  own 
judgment  and  the  judgment  of  the  times  in  agriculture, 
establishes  for  himself,  between  a  few  of  the  most  feasi- 
ble locations  still  remaining  unoccupied,  a  relative  esti- 
mate, and  selects  that  from  which  in  the  end  he  anticipates 
the  largest  return  with  the  least  labor.  As  this  process 
goes  on,  it  is  evident  that  later  choices,  from  their  very 
position,  must  suffer  a  disadvantage,  as  compared  with 
earlier  ones.  The  same  principle  guides  action  on  the 
farm.  It  is  the  most  arable  acre  that  is  first  ploughed, 
the  least  arable  that  is  last  ploughed. 


NATURAL   AGENTS.  39 

What  is  true  of  the  labor  expended  in  occupying  land, 
is  also  true  of  that  expended  in  bestowing  "additional 
culture  on  land  already  occupied:  its  ratio  to  production 
is  a  less  and  less  advantageous  one.  If,  from  a  single 
acre,  by  double  labor,  the  products  of  two  acres  could  be 
obtained,  and  by  triple  labor,  of  three,  and  so  on,  there 
would  be  no  reason  why  a  farmer  should  ever  occupy 
more  than  a  single  acre,  indeed,  more  than  a  few  square 
feet.  The  farmer  passes  to  the  second  acre,  because, 
according  to  the  prevailing  method  of  husbandry,  more 
produce  can  be  secured  from  it  by  the  same  labor  than 
can  be  secured  by  a  like  amount  of  additional  labor 
bestowed  upon  its  fellow  already  under  cultivation.  There 
is  a  strong  motive  to  confine  tillage,  as  long  as  its  ratio  to 
produce  is  the  same,  since  each  enlargement  of  the  farm 
involves  greater  distances,  and  a  greater  transfer  of  tools 
and  crops.  There  is  then  a  physical  limit  to  the  yield  of 
each  acre,  and  a  limit  that  is,  perhaps,  never  reached,  but 
whose  approach  demands  increasing  resources  and  exer- 
tion. Each  farmer  stands,  as  to  the  degree  and  kind  of 
culture  to  be  bestowed  on  his  acres,  precisely  as  we  have 
seen  him  stand  in  reference  to  the  choice  of  those  acres. 
The  crops  are  various,  the  labor  demanded  by  them  vari- 
ous, and  the  perfection  in  the  cultivation  of  each  various. 
He  chooses ;  his  interest  prompts  him  to  choose  that  crop 
and  that  degree  of  cultivation  in  that  crop,  in  which  the 
returns  bear  the  largest  ratio  to  the  labor.  As  there  arises 
an  increased  pressure  for  production,  he  will  be  forced 
down  the  scale  of  advantages,  taking  each  kind  of  crop 
and  method  of  culture  according  to  their  several  relations 


40  POLITICAL   ECONOMY. 

to  profits.      Here  then,  as  before,  the  agricultural  move- 
ment is  toward  a  labor  relatively  less  profitable. 

This  proposition  is  equally  true,  whatever  may  be  the 
state  of  agriculture  at  the  time.  The  knowledge  of  farm- 
ing which  is  practical,  is  that  which  belongs  to  the  farmers, 
and  while  this  remains  the  same,  it  matters  not  how  great 
or  how  little  it  is.  Each  farmer  guides  himself  by  it  in 
the  choice  of  hi%  lands  and  his  methods,  and  the  move- 
ment from  that  which  is  more  favorable  to  that  which  is 
less  favorable  goes  on.  The  ignorance  of  the  individual, 
by  which  he  falls  in  judgment  below  the  majority,  and 
accepts  a  poorer  tillage  in  place  of  that  which  he  should 
have  known  to  be  better,  may  indeed  be  a  private  misfor- 
tune, but  does  not  affect  the  general  movement.  No  more 
does  that  skill  by  which  single  individuals  outstrip  their 
fellows.  Any  change  in  climate,  or  in  the  centres  of 
population,  or  in  the  unexpected  presence  of  an  insect, 
may  alter  results  and  rearrange  relations;  but,  under 
every  fresh  set  of  circumstances,  the  movement  will  go 
on  to  renew  itself.  While  things  are  in  a  state  of  change, 
or  coerced  by  new  conditions  and  foreign  interference,  this 
native  tendency  may  be  disguised  or  counteracted;  but 
the  moment  the  attendant  circumstances  are  given,  it 
develops  itself.  The  only  important  counteraction  has 
been  reserved  for  the  following  proposition. 

§  4.  Improvement  in  the  methods  and  implements  of  agriculture  and 
of  transportation  increases  the  returns  of  labor,  and  thus  retards 
the  growth  of  an  unfavorable  ratio  between  agricultural  labor  and  its 
products. 

These  improvements  are  in  the  kind  of  manures,  in 
their  method  of  application ;    in  the  succession  of  crops 


NATURAL  AGENTS.  41 

and  manner  of  treatment ;  in  a  knowledge  of  the  capa- 
bilities of  different  soils  ;  in  instruments  for  more  thor- 
oughly and  readily  breaking  up  the  soil;  in  instruments 
for  more  perfectly  and  rapidly  sowing,  securing  the  crop, 
and  preparing  it  for  market;  in  new  varieties  of  fruits 
and  grains ;  in  the  breeding  of  cattle  ;  and  in  all  those 
methods  of  internal  intercourse  by  which  produce  is  easily 
brought  to  market,  and  in  its  value  the  element  of  trans- 
portation reduced  to  a  minimum.  If  these  and  kindred 
improvements  were  all  given  us  in  the  very  outset  of 
agriculture,  we  should  then  start  from  a  much  higher 
point,  and  possess  a  much  broader  margin  than  now ;  but, 
appropriating  the  best  of  these  gifts  at  once,  and  they,  in 
their  several  grades,  being  no  more  than  at  present  inex- 
haustible, we  should  begin  to  slide  down  the  scale  of 
advantages,  passing  from  greater  to  still  greater  labor, 
with  no  increase  of  recompense,  and  with  nothing  to 
suspend  the  slow  but  inevitable  movement.  If,  in  the 
beginning,  man  had  been  completely  armed  with  knowl- 
edge, this  tendency  would  still  have  shown  itself  in  the 
first  district  occupied  by  him ;  shortly,  emigration  passing 
from  this  district  to  neighboring  districts,  these  would  have 
become  separate  centres  for  the  development  of  the  same 
law,  till  it  had  extended  itself  over  the  whole  earth,  and 
then  been  left  to  intensify  itself  in  each  portion  of  the 
earth.  With  the  general  intelligence  and  free  communi- 
cation now  supposed,  this  law  would  never  become  strin- 
gent in  its  action,  till  the  whole  tolerably  fertile  territory 
of  the  earth  was  occupied. 

But  the  facts   are  very  different  from  these  imaginary 

4* 


42  POLITICAL   ECONOMY. 

ones.  In  some  countries,  teeming  with  a  large  popula- 
tion, stationary  in  all  the  arts  of  life,  and  restrained  by  law 
and  custom  from  foreign  intercourse,  this  law  has  fallen 
heavily  on  the  lower  classes,  —  the  slightest  accident  re- 
ducing many  to  famine.  In  other  more  favored  countries, 
the  law  contained  in  our  last  proposition  has  taken  full 
effect,  and  the  progress  in  one  direction  has  held  in  check 
that  in  another.  The  manner  in  which  the  law  of  agricul- 
tural labor  is  in  part  counteracted  by  that  of  agricultural 
improvements,  will  best  be  seen  by  an  illustration.  Sup- 
pose that  in  any  district  the  land  of  the  first  quality  is  all 
occupied,  and  that  population  is  just  advancing  upon  the 
second  quality.  If,  at  this  point,  a  discovery  be  made  in 
the  management  of  manures,  equivalent  in  its  results  to 
the  difference  between  the  two  kinds  of  land,  it  is  evident 
that  agriculture  so  aided  will  enter  on  land  of  the  second 
degree  of  fertility  with  the  same  advantages  that  it  before 
entered  on  land  of  the  first  degree.  A  difference  will 
indeed  be  established  between  the  owners  of  the  two 
qualities ;  but  not  by  depressing  the  owners  of  the  second 
quality,  but  by  elevating  the  owners  of  the  first  quality. 
Agricultural  labors  have  not  been  forced  down  the  scale ; 
but  the  scale  itself  has  been  moved  upward  one  degree, 
bearing  a  portion  with  it,  and  leaving  the  remainder  where 
they  all  before  were.  If  the  movement  from  the  second 
to  the  third-rate  land  is  attended  by  another  equivalent 
invention  in  tools,  two  divisions  of  community  —  the 
owners  of  the  first  and  the  second-rate  lands — would  be 
borne  upward  one  degree,  and  owners  of  third-rate  lands 
left  to  occupy  the  old  position. 


NATURAL   AGENTS.  43 

There  is  then  instituted  a  race  between  these  two 
tendencies.  If  the  advantages  secured  by  improvements 
can  outstrip  the  disadvantages  arising  from  the  occupation 
of  poorer  lands  and  the  higher  culture  of  old  lands,  then 
each  fresh  addition  to  agricultural  labor  will  secure  more 
products  than  former  additions.  If  the  two  are  equal,  then 
fresh  labor  will  occupy  the  position  of  old  labor,  and  old 
labor  a  more  advantageous  position  than  formerly.  At  this 
point,  the  two  forces  stand  in  equilibrium,  though  a  large 
balance  of  advantages  is  secured  to  the  community.  If 
improvements  fall  behind,  then  the  law  of  this  kind  of 
labor  resumes  its  march,  retarded,  but  not  stopped. 

It  is  sufficiently  evident  which  of  these  two  forces  must 
in  the  end  prevail;  the  one,  as  persistent  and  inexorable 
as  that  of  gravitation,  drags  everything,  and  drags  every- 
where; the  other,  fitful  and  uneven,  like  that  of  life,  now 
builds  its  fabric  rapidly  up,  and  then  ceases  altogether. 
Improvements  can  do  much  for  a  farm ;  but  they  cannot 
make  it  into  a  continent,  nor  a  continent  into  a  planet;  and 
their  insatiable  enemy  eats  up  continents  and  planets.  As 
long,  then,  as  fresh  additions  are  made  to  labor  —  and  we 
shall  shortly  see  whence  these  are  to  come  —  our  proposi- 
tion remains  true,  that  improvements  retard,  and  only 
retard,  the  growth  of  an  unfavorable  ratio  between  agri- 
cultural labor  and  its  products. 

Another  natural  agent,  intimately  connected  with  that 
of  land,  and  subject  to  the  same  laws,  are  mines.  These 
—  though  the  judgment  here  is  much  more  uncertain,  and 
the  objects  between  which  the  choice  is  to  be  made  much 
less  perfectly  before  the  mind  —  are  occupied  in  the  order 


44  POLITICAL   ECONOMY. 

of  their  supposed  value,  and  the  labor  expended  on  them, 
taking  intervals  of  any  great  length,  decreases  in  its 
reward  by  means  of  the  greater  depths  and  distances 
through  which  the  work  extends.  The  effect  of  all  im- 
provement in  means  would  obviously  be  the  same  as  we 
have  already  seen  it  in  the  case  of  land.  Results  here 
are  liable,  however,  to  much  more  violent  modifications, 
from  the  discovery  of  new  and  richer  mines,  and  from 
unexpected  developments  in  old  ones. 

$  5.  The  second  class  of  natural  agents  are  those  which 
impart  power.  Of  these,  the  first  used  and  still  the  most 
extensively  useful,  are  domestic  animals  of  draught  and 
of  carriage.  Here,  the  perfect  mobility  of  the  power,  and 
the  fulness  of  the  supply,  compensate  for  its  relative 
weakness.  This  agent,  though  frequently  appropriated 
while  land  is  yet  undivided  and  without  value,  in  all  the 
stages  of  society  possessed  of  economic  interest,  is  a 
product  of  land,  and  of  course  subject  to  the  same  laws. 
Though,  as  furnishing  power,  all  the  natural  agents  which 
remain  to  be  mentioned  have  successively  risen  into  com- 
petition with  this  first  agent  of  animal  force ;  yet,  so 
greatly  has  the  demand  for  power  been  at  the  same  time 
augmented,  that  we  can  hardly  suppose  that  from  this 
cause,  in  any  extensive  territory,  the  number  of  animals 
of  this  class  has  ever  been  diminished  ;  or,  whatever  may 
have  been  the  result  in  a  restricted  territory,  that  its  rate 
of  aggregate  increase  has  been  checked. 

The  three  leading,  inanimate  natural  agents  imparting 
power  are  wind,  water,  and  steam.     The  most  important 


NATURAL   AGENTS.  45 

productive  office  of  the  first  is  in  the  transfer  of  vessels ; 
but  in  this  use,  as  it  is  incapable  of  appropriation,  it  is  not, 
for  the  discussions  of  Political  Economy,  a  natural  agent. 
Existing  in  reliable  currents,  in  streams,  and  thus  confined 
to  localities,  it  may  move  machinery,  and  hence  become 
strictly  a  natural  agent.  In  this  relation,  it  is  wholly 
secondary  to  water,  and  conforms  to  precisely  the  same 
laws. 

Water,  as  a  source  of  mechanical  power,  has  but  one 
rival  —  steam.  Its  great  advantages  are,  the  absence  of 
any  first  cost  or  any  cost  in  sustaining  it,  and  the  sim- 
plicity of  the  means  by  which  it  is  applied.  Its  disad- 
vantages, that  the  power  furnished  is  limited  in  amount, 
is  strictly  local,  and  is  unequal  at  different  times  and 
seasons.  The  possession  of  water  privileges  is  dependent 
upon  the  possession  of  the  land  of  which  they  are  the 
incidents,  and  their  limited  number  and  differences  in 
value  will  cause  them  to  conform,  in  the  returns  they 
make  to  labor,  to  the  general  law  of  agriculture.  Im- 
provements in  the  method  of  securing  and  applying  the 
power  will  occasion  results  similar  in  kind  to  those  suffi- 
ciently presented  in  the  discussion  upon  land.  It  should 
be  observed,  as  modifying  the  first  law,  that  a  good  water 
privilege,  not  being  so  open  as  a  good  soil  to  the  judgment 
of  all,  is  frequently  overlooked,  and  that  it  sometimes 
involves  at  the  outset  an  expense  which  for  a  long  time 
prevents  occupation. 

In  this  natural  agent,  the  elements  of  value  are  power, 
position,  and  constancy.  It  must  have  force,  for  on  the 
degree  of  this  depends  its  productive  power;  this  force, 


46  POLITICAL   ECONOMY. 

for  its  highest  utility,  must  be  regular,  otherwise  there  is  a 
loss  of  time  and  of  use  in  the  machinery  employed ;  and, 
for  this  same  highest  utility,  the  locality  must  be  that 
which,  in  reference  to  the  material  employed  and  the 
commodities  to  be  sold,  involves  the  least  transportation. 
These  elements,  in  ever-varying  proportions,  exist  in  the 
value,  each  in  its  fluctuations  modifying  or  wholly  destroy- 
ing it. 

There  still  remains  the  most  powerful,  the  most  con- 
trollable, and  most  widely  applicable  of  all  the  natural 
agents  generating  force  —  steam.  Employed  the  latest  of 
these  motive  agents,  it  now  performs  the  work  of  millions, 
without  seeming  to  infringe  upon  the  career  left  open  to 
the  others.  It  has  created  the  call  for  the  labor  which  it 
has  performed.  Its  principal  advantages  are,  that  its 
amount  is  not  given  but  within  limits  which  include  all 
practical  wants  ;  can  be  fitted  to  the  demand, —  the  power 
conforming  to  the  purpose,  and  not  the  purpose  to  the 
power ;  that  it  can  be  applied  at  any  place,  indeed,  often- 
times produces  and  accompanies  a  transfer  in  place ;  and 
that  it  is  uniform  through  all  times  and  seasons.  It  will 
be  observed  that  these  advantages  strictly  correspond  to 
the  disadvantages  of  water,  and  to  the  three  elements 
which  unite  to  determine,  in  any  given  instance,  the  value 
of  that  natural  agent.  There  is  a  correspondence,  not 
less  strict,  between  the  disadvantages  of  steam  and  the 
advantages  of  water.  The  cost  of  sustaining  steam  is 
large  ;  the  means,  the  machinery  by  which  it  is  applied,  is 
expensive  and  complicated.  One  of  these  agents  is  the 
complement  of  the  other.     Steam  can  do  much  that  water 


NATURAL  AGENTS.  47 

cannot  do ;  water  does  cheaply  and  readily  much  that 
steam  would  do  with  great  cost  and  great  difficulty.  Owing 
to  the  correspondence  between  the  advantages  and  defi- 
ciencies of  these  agents,  by  which  the  one  is  made  the 
counterpart  of  the  other,  it  will  usually  happen  that  when, 
for  any  given  business,  the  cheapness  of  water  is  out- 
weighed by  its  want  of  entire  availability,  the  availability 
of  steam  will  come  in  to  overbalance  its  cost.  In  another 
class  of  cases,  the  reverse  of  this  would  be  true. 

Steam,  as  a  natural  agent,  comes  under  both  of  the 
laws  of  land.  Steam  works  at  a  constantly  increasing 
cost,  and  thus  with  something  less  of  ability  to  reward  the 
labor  employed  in  securing  and  applying  it.  It  comes 
under  this  law  by  reason  of  the  fuel,  which  is  the  chief 
part  of  the  cost  of  sustaining  it.  Fuel,  a  product  of  the 
land,  comes  under  the  law  of  agricultural  products,  and 
extends  that  law  to  the  steam-engine,  rapidly  if  that  fuel 
be  wood,  and  slowly  if  it  be  coal.  The  second  law  has,  at 
present,  a  still  more  vigorous  application,  —  the  constant 
improvements  securing  a  greater  economy  of  heat  and  of 
power,  often  throwing  far  back  the  advancing  expense  of 
wood. 

All  the  natural  agents,  either  from  sharing  the  same 
limitations  in  quality  and  quantity  as  land,  or  from  the 
intimacy  of  their  connection  with  and  dependence  on  this 
agent,  come  under  the  two  great  laws  of  agricultural  labor ; 
and  that  which  finds  its  most  characteristic  and  important 
application  in  the  soil,  extends  itself  through  the  remain- 
der of  nature's  gifts  and  working  forces. 


CHAPTER    III. 

OPERATION   OF  LAW   ON  PRODUCTION  THROUGH  NATURAL 
AGENTS. 

$  1.  The  world,  as  the  abode  of  man,  —  in  its  fields 
furnishing  food  to  his  appetites,  materials  to  his  skilful 
hands,  and  objects  of  attachment  to  his  thoughtful  eye; 
in  its  forces  providing  strength  to  arm  his  weakness,  en- 
durance to  render  unnecessary  his  fatigue,  and  velocity 
to  wing  his  slow  feet,  —  is  a  gift  to  the  race,  to  man,  and  to 
all  men,  and  not  to  individuals.  It  is  the  law  of  nature's 
unrestricted  gifts  —  air,  light  —  that  each  person  endowed 
with  faculties  for  their  enjoyment,  by  the  very  possession 
of  those  faculties,  claims  and  secures  for  himself  a  corre- 
sponding gratification.  The  ability  to  enjoy  and  the  right 
to  enjoy  are  commensurate.  There  is  here  one  law  of 
enjoyment  laid  down  by  nature  for  all,  and  he  that  meets 
the  law  secures  the  corresponding  pleasure.  Not  less  is 
this  true  of  those  gifts  that  can  be  appropriated  and  have 
value  ;  they  are  for  all,  and  on  conditions  the  same  to  all. 
Men,  placed  in  the  midst  of  nature's  gifts,  her  materials 
and  forces,  stand  each  in  relations  precisely  the  same  in 
kind,  and  with  rights  based  alike  and  strong  alike.  The 
part  which  falls  to  any  one  is  a  matter  of  interest  to  every 
one.      The  divided   right  of   each  implies   the  previous 


OPERATION    OF   LAW   ON    NATURAL   AGENTS.  49 

estimation  and  determination  of  the  right  of  all;  and 
property  is  not  secured  to  the  individual  till  it  has  first 
vested  in  the  community  of  individuals,  and  been  removed 
thence  by  the  assignment  to  each,  on  the  part  of  all,  of 
his  own  portion. 

Hence  it  is,  that  where  men  exist  in  communities,  and 
are  united,  as  tribes  and  as  nations,  their  unoccupied  and 
undivided  lands  vest  in  the  government,  which  is  the 
representative  of  their  common  right  and  common  owner- 
ship. When  so  vested,  the  land  may  be  sold  to  indi- 
viduals, and  the  money,  swelling  the  general  revenue,  be 
virtually  divided  among  all,  by  relieving  them  in  part  of 
the  common  burden  of  taxation ;  or  it  may  be  granted,  in 
limited  quantities,  to  actual  settlers,  —  thus  acting  as  a 
bounty  on  productive  labor,  and  increasing  the  general 
resources.  In  either  case,  the  advantages  virtually  reach, 
and  are  divided  among,  the  whole  community ;  though,  in 
the  second,  somewhat  more  indirectly  and  less  obviously 
than  in  the  first.  Every  family  has  an  open  invitation, 
a  reserved  resource,  for  any  of  its  members,  by  which  the 
pressure  of  numbers  on  limited  advantages  can  at  once 
be  relieved;  and  the  increase  of  wealth,  from  the  produc- 
tion which  the  new  lands  have  stimulated,  helps  to  bear 
the  common  burdens  and  call  forth  the  common  energies. 

Since  production  looks  for  its  materials  and  for  that 
which  is  to  sustain  its  labor  to  land,  it  is  evident  that 
nothing  can  be  of  more  fundamental  importance  to  it  than 
the  method  of  division  in  land,  and  the  tenure  upon  which 
land  is  held.  If  these  are  such  as  to  excite  the  highest 
agricultural  activity  and  skill,  and  to  secure  the  largest 

5 


50  POLITICAL  ECONOMY. 

amount  of  produce,  then  the  basis  of  production  is  broadly 
laid,  and  labor  has  that  upon  which  skill,  in  all  its  depart- 
ments, may  be  employed,  and  that  which  is  its  first  and 
most  necessary  reward.  If,  however,  land  is  so  divided 
and  so  held  as  to  straiten  its  productive  power,  all  the 
other  forces  of  production  will  be  weakened  in  a  corre- 
sponding degree,  and  the  whole  economical  system  lan- 
guish. 

For  purposes  of  production,  that  apportionment  of  land  among  agricul- 
tural laborers  is  the  best  which  is  the  most  equal,  and  which  makes 
each  a  freeholder. 

The  equality  here  spoken  of  is  not  an  absolute  equality 
—  is  not  an  equality  secured  or  maintained  by  forced  divi- 
sions and  rigid  restrictions,  but  that  proximate  equality  to 
which  the  natural  action  of  a  free  people  will  spontane- 
ously and  inevitably  tend.  It  is  that  equality  which  ever 
accompanies  land  held  in  fee  simple  by  its  cultivators. 
The  skill  and  desire  which  can  realize  large  agricultural 
rewards  find  the  way  open  before  them,  and  the  indolence 
which  is  able  to  secure  but  slight  returns  meets  "with  no 
difficulty  in  disposing  of  an  agent,  more  liberal  when  dis- 
missed than  when  retained.  Land  thus  tends  to  lodge  in 
the  hands  of  those  who  wish  to  cultivate,  and  know  how 
to  cultivate  it,  —  since  here  it  rests  most  profitably  to  the 
owner,  and  can  bear  the  highest  price.  If  forces  are  left 
free  to  act  and  arrange  results,  any  agent  and  any  product 
will  finally  rest  in  possession  with  the  persons  in  whose 
hands  it  bears  the  highest  price,  —  since  this  highest  price 
represents  a  preponderance  of  power  and  desire  on  their 


OPERATION   OF   LAW   ON   NATURAL   AGENTS.  51 

part,  drawing  the  agent  or  product  to  themselves.  Thus 
landed  possessions,  being  free  to  move,  will  seek  out  those 
who  have  the  largest  ability  to  make  their  culture  profita- 
ble, and  hence  to  hold  them  at  the  highest  price.  The 
ability  to  employ  land,  will,  under  such  circumstances, 
shortly  connect  itself  with  its  actual  possession,  and  the 
presence  of  productive  power  among  agricultural  laborers 
will  so  arrange  and  determine  ownership,  as  to  secure,  if 
not  accurately,  yet  roughly,  a  maximum  of  production. 

The  equality  produced  by  a  fee  simple  and  unchecked 
transfer,  though  as  between  individuals  far  from  perfect,  is 
yet  more  so  as  the  field  of  comparison  enlarges,  and  is  all 
that  is  demanded  by  the  interests  of  production.  It  is  an 
equality  that  is  perpetually  shifting,  according  to  the  vary- 
ing enterprise  and  energy  of  men.  It  is  an  equality  of 
opportunities,  rather  than  of  results ;  an  equality  produc- 
tive, not  of  a  dead  and  unbroken  level,  like  that  of  the 
plain,  but  of  a  heaving  and  restless  surface,  like  that  of 
the  ocean.  That  the  forces  now  marked  will  produce  a 
proximate  equality  in  the  division  of  land  in  a  community 
of  general  intelligence  and  skill,  and  where,  therefore, 
there  is  already  a  general  equality  in  the  resources  of 
those  bidding  for  possession,  is  sufficiently  evident.  But, 
even  in  a  community  where  the  disparity  between  the 
intelligence  and  skill  of  its  different  members  is  very 
great,  and  hence  where  the  productive  power  of  the 
whole  will  be  greatly  reduced,  these  forces  of  full  owner- 
ship and  free  transfer  will  struggle  towards  an  equality,  — 
the  germ  of  a  higher  productive  state. 

Though  the  superior  skill  of  the  individual  may,  stand- 


0 
52  POLITICAL   ECONOMY. 

ing  at  a  vantage  amid  the  ignorance  about  it,  outbid  for 
ownership,  it  cannot  do  so  indefinitely.  One  man  may  be 
able  to  cultivate  two  hundred  acres  better  than  any  other 
man  can  cultivate  a  like  amount  in  all  his  neighborhood; 
but  it  does  not  thence  follow  that  if  ten  acres  be  added  to 
the  two  hundred,  that  those  ten  will  be  more  profitably 
cultivated  by  him  than  by  any  other.  Personal  interest, 
supervision,  and  labor,  rapidly  exhaust  themselves;  and, 
as  it  was  these  which  gave  the  fortunate  individual  his 
advantage,  as  fast  as  they  are  expended,  that  advantage 
will  be  expended.  The  additional  ten  acres,  by  the  zeal 
of  limited  ownership,  might,  in  the  hands  of  a  person  of 
much  less  original  skill,  be  brought  up  in  cultivation  to  a 
point  higher  than  that  which  they  would  occupy  if  added 
to  a  farm  already  sufficiently  large.  Thus  it  would  happen 
that  all  agricultural  laborers,  though  with  intervals  be- 
tween classes  greater  than  in  a  more  favored  community, 
would  be  able  to  bid  for  ownership,  and  to  secure  that 
on  which  labor  might  meet  with  a  return,  and  skill  be 
ripened.  v 

No  other  tenure  than  that  of  a  fee  simple,  with  its 
attendant  facility  of  transfer,  will  tend  to  the  equality 
of  which  we  have  spoken,  since  none  other  yields  itself 
perfectly  to  the  natural  forces  at  work ;  but  all  bring  for- 
ward a  foreign  law  of  their  own,  by  which  land  is  retained 
in  certain  hands,  and  clustered  about  certain  centres. 

§  2.  Having  explained  our  proposition  as  to  the  equality 
of  division, to  which  it  refers,  and  the  connection  of  that 
division  with  the  method  of  tenure,  we  now  proceed  to  its 
proof. 


OPERATION   OF  LAW   ON   NATURAL  AGENTS.  53 

(a)  By  an  apportionment  of  land  comparatively  equal  — 
the  only  element  of  inequality  being  the  inequality  of 
desire  and  effort  still  existing  under  facilities  and  rights 
essentially  the  same  for  all  —  there  is  secured  to  produc- 
tion a  larger  amount  of  the  personal  supervision,  skill,  and 
exertion  of  owners,  than  by  any  other  method  of  division ; 
both  because  the  number  of  separate  estates  is  by  this 
means  made  as  large  as  the  number  of  efficient  laborers, 
and  because  each  estate  is  of  those  limited  dimensions 
which  most  thoroughly  subject  it  to  the  eye  and  labor  of 
the  owner.  However  skill  may  concentrate  itself  in  indi- 
viduals, that  skill,  to  b3  most  thoroughly  applied,  must  be 
personally  and  limitedly  applied;  and  so  applied,  it  will 
beget  corresponding  skill  in  those  standing  on  the  same 
basis  of  advantages  and  interests  To  assume  that  this 
practical  skill  is  any  more  likely  to  exist  in  the  holder  of 
great  estates  than  in  the  actual  cultivator  of  a  limited 
property,  is  altogether  a  gratuity ;  and  when  it  does  so 
exist,  acting  through  mere  agents,  it  acts  with  less  pre- 
cision, and,  standing  on  a  higher  platform  of  advantages, 
it  has  comparatively  little  ability  to  stimulate  the  agricul- 
tural interests  that  lie  below  it 

(b)  By  small  freeholds,  the  strongest  motives  to  produc- 
tion are  brought  to  bear  the  most  universally.  These 
motives  are  the  pleasure  of  possession,  of  self-guided 
exertion,  and  pecuniary  interest.  The  motive  which  oper- 
ates upon  a  slave  is  fear;  and  the  inquiry  is,  how  little 
can  be  done  with  safety.  The  motive  which  operates 
upon  the  freeholder  is  expectation,  hope ;  and  the  inquiry 
is,  how  much  can  be  done  with  safety.      Between  these 

5* 


54  POLITICAL    ECONOMY 

there  is  every  grade  and  degree  of  motive ;  but  at  no  point 
does  the  sense  of  interest,  of  pleasure,  and  of  worth,  so 
press  to  and  reward  effort,  as  when  the  laborer  is  con- 
scious of  controlling  himself,  his  resources  and  his  land, 
and  that  he  is  to  look  to  these  for  his  reward. 

(c)  By  a  division  and  possession  of  land  proximately 
equal  and  general,  that  intelligence  and  energy  upon 
which  production  is  so  largely  dependent  is  both  implied 
and  secured.  In  society,  the  highest  productive  state  is 
also  the  state  of  highest  intelligence  and  morality.  It  is 
in  these  last  that  the  spring  and  life  of  the  first  is  to  be 
found.  All  labor  is  productive  in  proportion  to  the  intelli- 
gence and  integrity  that  guide  it.  The  lower  value,  the 
lower  excellence,  cannot  exist  in  any  high  degree  detached 
from  the  superior  excellence,  of  which  it  is  the  offspring. 
Hence  it  is,  that  the  state  of  society  which  secures  the 
largest  aggregate  of  knowledge  and  integrity,  is  the  state 
best  fitted  for  production.  Now,  intelligence  and  energy 
aim  at  possession,  are  fostered  by  success,  and  are 
greatly  injured  and  straitened  by  failure.  The  agricultural 
laborers  of  any  community  will  trace  and  make  proof  of 
their  progress  in  knowledge,  by  their  progress  in  the  pos- 
session of  freeholds ;  and  when  these  are  not  allowed 
them,  one  of  the  most  valued  rewards  of  knowledge  being 
absent,  there  will  be  a  proportionate  deficiency  in  knowl- 
edge itself.  If,  then,  free  acquisition  and  free  possession 
are  necessary  to  the  highest  development  of  energy,  skill, 
a  sense  of  responsibility,  and  enlightened  action  in  any 
community ;  if  the  equal  rights  and  undisturbed  action  of 
all  are  requisite  to  its  highest  social  state;  then  are  they 


OPERATION"  OF  LAW  ON  NATURAL  AGENTS.     55 

in  the  same  degree  requisite  for  the  best  interests  of  pro- 
duction, since  the  perfection  of  the  last  can  alone  be 
secured  in  the  perfection  of  the  first.  Indolence  and 
ignorance  evidently  tend  to  dependence ;  and  it  is  scarcely- 
less  evident,  that  dependence,  in  all  its  degrees,  secures  in 
its  subjects  this  same  indolence  and  ignorance  of  which  it 
is  the  appropriate  shelter.  Independence  demands  a 
skilful  industry  and  a  wise  integrity ;  a  skilful  industry 
and  wise  integrity  demand  independence;  and,  indepen- 
dent, are  in  the  highest  degree  productive. 

In  what  has  been  hitherto  said,  we  have  spoken  as  if  a 
people  entered  as  an  organized  community  upon  its  pos- 
sessions, and  determined  freely  the  portion  which  should 
fall  to  each  of  its  members,  and  the  tenure  upon  which  it 
should  be  held.  This,  though  partially  corresponding  to  the 
history  of  things  in  a  portion  of  the  United  States,  is 
widely  different  from  the  action  of  the  causes  which  have 
fixed  the  condition  of  society  in  older  countries.  There, 
the  present,  with  all  its  concomitants,  is  inherited  from  the 
past,  and  often  bears  traces  of  its  violence  and  wrong. 
The  partition  of  land  has  not  been  between  acknowledged 
equals,  but  between  masters  and  vassals,  —  between  lead- 
ers and  soldiers,  —  between  those  who  by  strength  had 
usurped  all  rights,  and  those  who  by  weakness  had  lost 
all  rights.  The  accidents  of  strength  and  opportunity 
have  established  classes,  with  their  complex  relations,  in 
each  of  these  communities,  and  these  relations  have  been 
slowly  readjusted,  as,  by  the  growth  of  intelligence  and 
of  power,  any  portion  of  the  people  has  been  able  to 
claim  and  secure  a  larger  share  of  rights  and  enjoyments. 


06  POLITICAL  ECONOMY. 

The  vicious  and  unjust  systems,  shaped  under  the  arbitra- 
tion of  the  sword,  —  established  by  unscrupulous  assertion 
on  the  one  side,  and  by  a  superstitious,  an  unquestioning 
and  patient  concession  on  the  other,  —  have  been  gradually 
modified,  in  every  variety  of  degree,  by  principles  resting 
upon  a  broader  justice  and  a  more  universal  right.  Upon 
the  point  which  any  nation  has  reached,  in  its  progress 
towards  an  equality  of  social  rights  and  advantages,  will 
depend  the  method  of  division  among  those  natural  agents 
which  are  the  common  possession  of  all,  not  in  actual 
ownership,  but  in  the  open  and  equal  conditions  of  owner- 
ship. With  this  division,  and  with  the  motives  springing 
therefrom,  production  has  much  to  do. 

$  3.  Though  the  home  lands  of  most  enlightened  nations 
are  already  disposed  of,  in  the  hands  of  actual  holders,  and 
thus,  the  right  of  possession  having  taken  full  effect,  are 
beyond  the  interference  of  government,  yet  the  title  to 
these  lands  is  perpetually  returning  to  the  state,  and  is 
solely  dependent  upon  the  laws  of  the  state  for  its  estab- 
lishment in  a  new  set  of  owners.  Every  civil  right, 
whether  of  possession  or  purchase,  must,  from  its  very 
nature,  cease  with  death.  There  is  no  longer  any  claim 
on  the  part  of  the  deceased  which  the  state  can  recognize 
and  sustain.  The  portion  which  he  held,  but  which  he 
no  longer  holds,  has  performed  its  office,  in  reference  to 
him,  and  virtually  fallen  back  into  the  common  resources. 
The  gifts  of  the  world  are  repeated  to  each  generation  for 
its  life,  and  not  given  to  one  generation  for  the  life  of  the 
race.     The  dead  man  has  no  right,  or,  if  a  seeming  right 


OPERATION   OP  LAW   ON   NATURAL   AGENTS.  57 

were  granted,  no  power,  to  claim  and  secure  it.  From  the 
hand  relaxed  in  death  every  vestige  and  semblance  of 
earthly  possession  escape,  and  the  concessions  made  to 
the  tomb  are  those  of  fear  and  affection  only.  As  far  as 
the  living  are  concerned,  when  the  holder  of  property  has 
exhausted  his  right  in  it,  —  a  life's  enjoyment,  —  and  made 
resignation,  it  is  as  if  a  new  addition  had  been  made  to 
the  world's  previous  advantages,  and  was  waiting  a  just 
partition. 

Nor  have  the  heirs,  in  this  regard,  any  rights,  except  as 
the  state,  for  its  own  interest,  may  see  fit  to  give  them 
such  rights.  They  have  no  claim  by  possession,  by  labor, 
by  purchase  ;  their  only  claim  is  by  inheritance,  and  this 
claim,  for  its  existence  and  limitations,  is  dependent,  and 
solely  dependent,  on  the  laws  of  the  state.  The  state,  in 
passing  laws  of  inheritance,  in  deciding  who  shall  be  heirs, 
recognizes  the  fact  that  the  title  is  in  itself,  and  at  its  own 
disposal ;  if  it  is  not,  the  inquiry  should  be,  who  owns  the 
property,  not  who  ought  to  own  it. 

It  is  involved,  then,  in  the  very  nature  of  the  case,  and 
in  every  law  of  inheritance,  that  all  property,  at  the  death 
of  the  owner,  reverts  to  the  state,  and  there  awaits  its 
disposition.  That  land  so  reverting  to  the  state  should, 
according  to  certain  laws  of  inheritance,  be  vested  in 
heirs,  there  can  be  little  doubt.  Whatever  may  be  said  in 
the  case  of  distant  collateral  heirs  who  are  to  the  deceased 
as  strangers,  the  thought  that  one's  exertions  are  to  benefit 
his  children,  his  kindred,  is  unquestionably  a  great  stimu- 
lus to  production ;  and  if  the  state  were  to  enter  into  every 
inheritance,  there  would  soon  be  but  little  to  be  inherited. 


58  POLITICAL   ECONOMY. 

Heirs  usually  stand  in  such  relation  to  property,  that  the 
interests  of  production  can  be  most  securely  reached  by 
their  immediate  and  quiet  possession. 

"We  have  introduced  this  discussion,  not  to  question  the 
general  principle  of  inheritance,  but  to  show  the  indisputa- 
ble nature  of  that  right  which  belongs  to  the  state,  to 
establish  any  law  of  inheritance  which  the  general  inter- 
ests demand.  What  this  law  shall  be  is  of  the  last  impor- 
tance to  production. 

That  law  of  inheritance  in  land  is  best  for  production  by  which  the 
divisio?i  is  made  equal  among  heirs  at  the  same  remove. 

By  such  a  law,  a  constant  dispersion  of  property  is 
secured,  —  a  constant  return  to  the  general  level,  by  which 
all  individual  efforts  for  aggregation  are  effectually  baffled. 
It  excludes  the  possibility  of  a  landed  aristocracy,  with  its 
concentrated  luxury,  its  tenantry  trained  to  dependence, 
and  its  incentives  to  effort  made  feeble,  on  the  one  side, 
by  the  possession  of  too  much,  and  on  the  other,  by  the 
possession  of  too  little.  The  present  proposition  is  inti- 
mately connected  with  the  previous  one,  aims  at  the  same 
result,  and  is  sustained  by  the  same  arguments.  What- 
ever may  have  been  the  distribution  of  land,  laws  of  free 
transfer  and  of  equal  inheritance  will,  without  violence  or 
infringement  of  the  rights  of  any,  shortly  break  down  all 
barriers,  and  place  land  in  the  hands  of  every  agricul- 
turist who  seeks  it  with  energy  and  skill.  An  equal 
inheritance  is  one  of  the  most  efficient  methods  of  appor- 
tioning land  among  its  cultivators,  and  of  bringing  all  the 
incentives  to  production  to  bear  at  their  maximum  power 


OPERATION    OF   LAW   ON   NATURAL   AGENTS.  59 

on  individuals  trained  to  exertion,  —  an  exertion  quickened 
both  by  the  success  which  it  still  wants,  and  by  the  suc- 
cess it  has  already  achieved;  both  by  the  objects  which 
kindle  desire,  and  the  means  in  hand  which  make  their 
attainment  possible. 

The  law  which  especially  stands  opposed  to  this  equal 
division  among  heirs  is  that  of  primogeniture.  This  is 
but  one  of  those  protections  cast  about  an  aristocracy,  to 
sustain  the  dignity  of  its  rank  by  broad  landed  possessions, 
and  to  shield  it  from  the  leveling  tendencies  of  natural 
forces.  Whatever  may  be  the  arguments  sustaining  such 
a  class,  they  cannot  be  drawn  from  Political  Economy. 

Distinctions  of  classes,  in  the  outset  established  by 
violence  or  the  fear  of  violence,  and  all  along  sustained 
by  legislation  more  or  less  inimical  to  the  masses,  find  no 
justification  in  the  interests  of  production.  Production 
relies  on  the  masses,  seeks  to  bestow  its  rewards  on  them, 
to  elevate  them,  and  to  make  them  its  intelligent,  success- 
ful and  self-guided,  and  thus  its  most  efficient  agents.  An 
aristocracy,  on  the  other  hand,  gathers  up  the  rewards  of 
labor,  the  enjoyments  and  luxuries  of  life,  and  bestows 
them  not  on  those  who  have  produced  them,  and  where 
falling  they  are  the  needful  stimulus  of  industry,  but  upon 
the  most  unproductive,  and  hence,  as  far  as  Political 
Economy  is  concerned,  the  most  worthless  of  all  classes, 
where  they  can  but  cherish  an  indolence  already  too  rank. 
A  given  state  of  production  can,  with  a  fixed  population, 
secure,  in  addition  to  its  necessaries,  but  a  limited  amount 
of  luxuries.  Through  these  luxuries  it  is  that  production 
is  quickened,  and  if  they  be  rightly  divided — -as  natural 


60  POLITICAL    ECONOMY. 

forces  left  to  themselves  will  divide  them  —  among  the 
strongest  and  sturdiest  producers,  they  act  like  bounties, 
and  tell  rapidly  on  the  prosperity  of  a  whole  community. 
But  if,  by  any  restrictions  or  monopolies,  —  if,  by  the  great 
monopoly  of  birth,  —  they  are  taken  from  the  hand  of  the 
real  producers^  and  given  to  those  who,  of  all  others,  have 
least  to  do  in  securing  the  physical  prosperity  of  a  people, 
they  then  lose  not  only  all  ability  to  quicken  industry,  but, 
by  a  distribution  so  arbitrary  and  capricious,  they  dissuade 
from  that  industry  which  has  not  strength  to  hold  its  own 
rewards,  or  to  vie  with  the  lavish  favors  of  fortune.  What 
could  more  completely  destroy  the  natural  incentives  to 
effort  than  a  division  into  two  classes,  the  one  born  to  the 
enjoyments,  and  the  other  to  the  privations  of  labor ;  the 
enjoyments  giving  the  indolence  of  luxury,  the  privations 
the  indolence  of  misery  ?  These  distinctions  may  exist  in 
every  degree,  from  the  community  in  which  all  are  either 
slaves  or  masters,  to  that  in  which  the  small  remains  of 
an  aristocracy  are  scarcely  felt  as  a  burden  on  the  buoyant 
strength  of  a  large  and  energetic  people  ;  yet  everywhere, 
according  to  the  intensity  of  the  evil,  will  results  develop 
themselves. 


CHAPTER   IV. 

LABOR. 

Chief  among  the  means  of  production  is  labor.  While 
natural  agents  furnish  the  instruments  through  which,  and 
the  materials  on  which,  it  may  operate,  while  capital  facili- 
tates its  operations,  it  is  labor  that,  shaping  commodities 
and  services  to  the  multiform  desires  of  men,  does  most 
to  create  and  determine  values.  Few  are  the  articles  into 
which  it  does  not  enter  as  a  prime  element  of  cost,  and  by 
its  differences  in  kind  and  degree,  the  wealth  and  produc- 
tive power  of  individuals  and  nations  are  determined. 
Labor,  resulting  in  a  product,  —  a  bow,  a  spear,  —  has 
ever  been  one  of  the  earliest  teachers  of  the  rights  of 
ownership  and  the  principles  of  economic  action. 

Labor  is  physical  or  mental  exertion,  on  the  part  of 
man,  to  create  or  to  occasion  value. 

This  definition  excludes  all  that  activity  which  has 
reference  simply  to  the  pleasure  of  the  person  putting  it 
forth.  The  most  skilful  pianist,  when  playing  for  his  own 
enjoyment,  occasions  no  value,  and  is  not  a  laborer ;  per- 
forming in  public,  he  creates  a  service,  a  value,  and 
becomes  a  laborer.  Activity  which  results  neither  in  a 
commodity  nor  service,  is  not  labor.  It  also,  in  connection 
with  our  other  definitions,  precludes  a  very  common  divis- 

6 


62  POLITICAL   ECONOMY. 

ion  into  productive  and  unproductive  laborers.  We  have 
recognized  services  and  commodities  as  alike  products; 
those  who  produce  neither  of  these  are  not  producers,  and 
hence  not  laborers ;  those  who  produce  either  of  them  are 
producers,  and  hence  laborers. 

Political  Economy  has  no  occasion  to  include  in  its  defi- 
nition of  labor  any  exertion  that  does  not  create  value, 
since  such  exertions  lie  outside  of  the  province  of  produc- 
tion, and  have  for  the  science  of  wealth  no  interest.  All 
labor,  that  it  may  be  labor,  must  be  productive ;  and  when 
we  have  recognized  a  class  of  persons  as  laborers,  we  can 
no  longer  stigmatize  them  as  unproductive  laborers.  The 
tangible  form  under  which  a  commodity  always  appears, 
has  given  to  it,  in  comparison  with  a  service,  a  value  seem- 
ingly more  substantial,  and  a  greater  power  to  represent 
wealth.  A  partiality  for  visible  and  material  values  has 
exhibited  itself  in  language,  and  secured  for  those  whose 
exertions  are  directed  to  commodities  the  title  of  produc- 
tive laborers,  leaving  those  whose  exertions  are  services 
under  the  disparagement  of  being  unproductive  laborers. 
That  any  distinction  exists  between  commodities  and  ser- 
vices, unfavorable  to  the  latter,  is  not  evident.  Services 
are  usually  consumed  in  the  very  instant  in  which  they 
are  performed,  and  this  gives  them  the  appearance  of 
being  unproductive.  But  a  commodity,  though  it  waits 
longer  for  the  moment  of  its  destruction,  is  not  the  less 
certainly  destined  for  unproductive  consumption ;  nor  can 
the  one  of  these  two  kinds  of  products  receive  any  char- 
acter from  its  ultimate  destination  which  does  not  equally 
belong  to  the  other.     A  service  is  not  disparaged  by  being 


LABOR.  63 

immediately  consumed ;  its  utility  is  thereby  but  the  more 
rapidly  secured,  its  ability  to  gratify  desire  the  more  per- 
fectly shown.  Nor  is  it  to  be  inferred,  from  this  rapidity 
of  consumption,  that  the  effects  of  a  service  remain  for 
a  shorter  time,  stimulating  and  aiding  production.  The 
reverse  of  this  is  often  true ;  and  the  results  of  a  service 
performed  by  the  teacher  of  knowledge  and  morals  may 
remain,  as  a  fresh  and  powerful  agency  in  production,  long 
after  all  the  commodities  which  had  birth  with  it  have 
been  destroyed  by  a  consumption  well-nigh  total.  Indeed, 
nearly  all  the  guiding  and  renewing  impulses  of  produc- 
tion come  to  it  in  the  form  of  services. 

Nor  has  a  commodity  any  advantage  over  a  service  in 
its  immediate  ability  to  quicken  effort.  Both  address 
desires,  and  aim  at  their  gratification.  He  who  attends 
a  concert  may  receive  a  larger  amount  of  pleasure  than  he 
who  expends  a  corresponding  amount  on  food  or  drink; 
and,  if  so,  the  stimulus  to  exertion,  in  order  to  secure 
similar  enjoyments,  will  be  greater  in  the  first  case  than  in 
the  second.  The  two  products  may  each  be  luxuries, 
may  each  be  necessities,  each  gratify  desire,  and  so  far 
are  equal;  their  relative  worth  must  evidently  depend,  in 
each  instance,  on  the  particular  desire  gratified,  and  its 
relation  to  the  good  of  the  individual,  and  not  at  all  on  the 
question,  whether  the  desire  has  been  met  through  an 
object  or  an  action.  Indeed,  if  a  rude  generalization  were 
at  all  admissible,  our  preference  would  certainly  be  for 
immaterial,  as  contrasted  with  material  enjoyments.  But, 
as  far  as  the  ends  of  production  are  concerned,  there  is  no 
valid  distinction  between  a  commodity  and  a  service, — 


64  POLITICAL   ECONOMY. 

between  the  so-called  productive  and  unproductive  laborer. 
Each  is  a  laborer,  each  a  producer,  and  the  disparaging 
adjective  has  no  more  truth  when  applied  to  the  one  class 
than  to  the  other;  indeed,  whenever  it  can  be  applied,  it 
simply  excludes  the  individual  suffering  under  it  from  the 
pale  of  Political  Economy.  The  question  of  the  degree 
of  their  productive  power,  of  the  value  of  their  different 
employments,  lies,  not  between  two  great  classes,  but 
between  all  those  various  laborers,  who  together  make  up 
the  gross  sum  of  producers. 

§  2.  Labor  aims  at  utilities,  and  these  utilities  may  be 
fixed  — 

(a)  In  outward  objects; 

(b)  In  human  beings ; 

(c)  In  no  object. 

The  first  gives  us  a  commodity,  the  last  two,  services. 
Of  these  two  classes  of  services,  the  first  is  among  the 
most  important  and  permanent  agencies  in  production ;  the 
last,  among  the  least  important.  Instruction  in  the  arts,  in 
the  sciences,  in  social  duties,  is  the  most  fruitful  and  pro- 
ductive of  all  culture.  This  product  of  skill  and  knowl- 
edge, different  from  the  two  other  kinds  of  products,  seems 
incapable  of  absolute  consumption,  but  grows  by  being  fed 
on.  The  indolence,  on  the  other  hand,  begotten  by  many 
of  those  services  which  relieve  men  from  the  effort  neces- 
sary for  their  personal  convenience  and  comfort,  has 
always  disparaged  them  with  Political  Economists,  and  in 
part  given  rise  to  the  distinction  of  productive  and  unpro- 
ductive labor. 


LABOR.  65 

It  is  the  labor  resulting  in  commodities  which  especially 
engages  attention,  both  in  the  pursuit  and  in  the  science 
of  wealth.  The  amount  and  variety  of  labor  represented 
in  any  given  completed  commodity,  and  rewarded  in  its 
sale,  are  usually  beyond  any  definite  estimate.  Behind  a 
yard  of  cotton,  claimants  for  their  portion  of  its  price  are 
the  weaver,  the  spinner,  the  many  workmen  and  agents 
of  the  manufactory ;  the  drayman,  the  wagoner,  the  sailor, 
the  ship  owner,  and  all  the  agents  of  carriage  ;  the  planter, 
the  laborer ;  and,  in  addition  to  these,  and  far  outnumber- 
ing them,  those  who  have  constructed  the  machinery,  the 
buildings,  and  the  implements  of  commerce  and  of  agri- 
culture. Nor  does  our  analysis  rightly  stop  here ;  for  each 
instrument  is  itself  the  product  of  other  instruments,  and, 
at  every  remove  from  the  first  commodity,  —  oar  starting- 
point,  —  we  find  the  circle  of  laborers  widening,  and  new 
comers,  from  all  departments,  crowding  upon  us. 

Among  the  various  ways  in  which  labor  is  employed, 
the  first  and  most  fundamental  is  in  the  production  of  the 
material.  This  class  of  labor  finds  its  type  and  repre- 
sentative in  agriculture.  Here  is  the  farmer,  the  miner, 
the  herdsman,  the  fisherman,  and  the  huntsman. 

The  second  office  of  labor  is  that  modification  of  mate- 
rials by  which  they  become  completed  products.  This 
includes  not  only  that  labor  which  lies  in  the  direct  line  of 
change  along  which  the  raw  material  passes  in  becoming 
the  commodity  of  our  markets,  but  also  the  processes 
subordinate  thereto,  —  the  construction  of  buildings  and 
implements.  This  class  of  labor  is  somewhat  inade- 
quately and  roughly  comprehended  in  the  term,  manufac- 

6* 


66  POLITICAL   ECONOMY. 

taring.  This  class  includes  a  great  variety  of  laborers  : 
millers,  bakers,  spinners,  weavers,  dyers  ;  workers  in  wood, 
leather,  iron,  gold ;  all  the  innumerable  servants  of  art  in 
her  various  forms  of  handicraft. 

A  third  office  of  labor,  completing  the  other  two,  is  that 
of  transfer,  by  which  commodities  pass  from  the  hand  of 
the  producer  to  that  of  the  consumer.  Much  of  this  trans- 
fer, however,  may  come  in  prior  to  the  labor  of  the  manu- 
facture, or  during  its  continuance.  Here  are  the  workmen 
of  commerce,  —  the  sailor,  the  boatmen,  the  engineer,  the 
porter,  the  drayman,  the  merchant. 

Among  those  whose  labors  are  represented  in  commodi- 
ties, there  is  a  fourth  class,  —  that  of  intellectual  laborers, 
—  the  inventor,  the  writer,  the  editor. 

It  deserves  remark,  that  there  is  labor  connected  with 
a  commodity  which  is  not  represented  in  it.  If  ten  men 
are  employed  in  making  a  machine,  the  material,  their 
labor,  and  the  wear  of  tools,  are  summed  up  in  the  final 
value,  but  not  the  labor  which  may  have  been  expended 
in  providing  those  ten  men  with  food  while  thus  engaged. 
Food  is  itself  a  commodity,  and  the  labor  which  has  been 
expended  in  securing  that  food  is  finally  compensated  by 
it.  On  the  sale  of  this  food  to  the  ten  men,  it  becomes 
to  them,  like  all  the  other  enjoyments  of  life,  a  thing 
whose  cost  they  must  bear,  deducting  it  from  their  wages. 
The  price  of  the  machine  is  made  up  of  the  cost  of  mate- 
rials, of  the  wear  of  tools,  and  of  wages ;  to  this  last  item 
the  price  of  the  food  is  not  to  be  added;  but  these  are 
to  be  expended  by  the  laborer  for  food,  for  other  necessi- 
ties and  enjoyments,  in  such  ratios  as  he  chooses,  —  these 


LABOR.  67 

collectively  constituting  to  him  the  ultimate  reward  which, 
for  a  brief  time  and  in  a  transition  state,  stood  repre- 
sented to  him  in  his  wages.  Nor  is  the  case  altered,  if 
the  employer  furnish  food  to  the  employee.  In  that  case, 
the  food  and  the  money  together  make  up  the  price  of  ten 
hours  of  labor ;  and  these  ten  hours  are  all  that  is  to  be 
charged  to  the  machine.  It  matters  not  that  their  price 
is  now  represented  by  two  items,  —  food  and  money. 
This  is  accidental ;  it  might  have  been  represented  by 
garments  and  money,  or  garments  alone.  A  commodity 
would  cost  no  less  in  any  given  community  if  the  men 
who  made  it  were  able  to  live  without  food.  This  would 
redound  to  their  advantage,  not  to  that  of  their  employer. 
All  commodities,  equally  of  food  as  of  other  kinds,  com- 
plete up  to  their  own  value  the  remuneration  of  labor,  by 
their  sale  or  consumption,  and  do  not  again  appear  in  the 
price  of  after  commodities.  If  they  did,  the  price  of  the 
last  commodity  would  sum  up  that  of  all  previous  com- 
modities. Not  so  with  the  tools  and  buildings  incidental 
to  a  manufactory.  These  gratify  no  desire,  and  hence  add 
themselves  to  the  price  of  those  products  for  which  they 
were  made,  and  in  which  a  true  or  immediate  utility  is 
found.  Commodities  may  have  either  a  mediate  or  im- 
mediate utility.  The  first  class  —  a  tool,  a  machine  — 
add  their  cost  to  the  products  made  by  them.  The  second, 
—  food,  garments,  houses,  —  by  their  own  value,  compen- 
sate the  producers,  and  when  finally  consumed,  are  so  at 
the  cost  of  the  consumer.  That  they  so  frequently  appear 
in  wages  is  accidental ;  and,  when  so  appearing,  they  do 
not  add  themselves  to,  but  form  a  constituent  of  wages. 


68  POLITICAL   ECONOMY. 

The  productiveness  of  labor  will  depend  — 

(a)  Chiefly  on  the  characteristics  of  the  laborers, — 
physical,  intellectual,  and  moral,  —  their  social  position 
and  influences ; 

(b)  On  the  quality  of  the  material  agents  in  their  pos- 
session ; 

(c)  On  the  amount  of  capital  at  their  disposal  for  pur- 
poses of  industry. 

The  nature  of  this  last  agent,  and  its  connection  with 
production,  now  need  to  be  pointed  out. 


Xihrm\if* 

CHAPTER   V. 

CAPITAL. 

An  indispensable  condition  for  all  extensive  production 
is  capital.  The  efforts  of  the  past  are  the  basis  upon 
which  the  efforts  of  the  present  rest;  and  human  labor 
would  meet  with  very  barren  results  were  it  not  at  every 
Step  sustained  by  previous  labor.  Capital  enables  in- 
dustry to  gather  momentum,  and  by  its  accumulated  force 
—  its  buildings,  its  machinery,  and  materials  —  to  become 
a  great  power,  holding  at  its  disposal  a  working  strength 
far  beyond  the  aggregate  strength  of  all  individual  laborers. 

Capital  is  a  commodity,  or  commodities,  retained  to  be 
employed  in  production. 

This  retention,  which  is  the  condition  of  the  existence 
of  capital,  is  abstinence.      Labor  secures  a  product,  and    \J 
labor  and  abstinence  secure  capital. 

Capital  is  divided  into  fixed  and  circulating. 
,  The  material,  from  the  time  in  which  it  is  first  drawn 
into  the  circle  of  labor  to  that  in  which  it  is  thrown  out  in 
actual  consumption,  undergoes  many  changes.  These 
changes,  in  place,  in  form,  in  qualities,  occupy  time,  and 
frequently  the  efforts  of  many  persons.  During  this  period 
there  is  a  value  in  the  material,  and,  having  already 
received  labor,  it  is  a  product.     There  is  also,  on  the  part 


70  POLITICAL   ECONOMY. 

of  each  person  through  whose  ownership  it  passes,  absti- 
nence, in  order  that  it  may  pass  on  and  become  a  completed 
commodity.  The  ultimate  or  true  consumer  rewards  m 
its  price  all  the  abstinence  and  labor  which  have  been 
employed  about  the  article  ;  and  it  is  the  interest  of  each 
one  in  the  circle  of  industry  to  pass  the  product  from  hand 
to  hand,  in  order  that,  reaching  its  destination,  the  return- 
ing recompense  may  be  received.  Now,  with  each  of 
these  owners  it  has  been  capital,  since  it  contained  both 
labor  and  abstinence ;  and  circulating  capital,  since  they 
reach  their  gains  by  its  transfer. 

But,  in  each  of  the  processes  through  which  the  article 
has  passed,  there  have  been  implements,  and,  perchance, 
buildings,  aiding  in  the  several  changes ;  these  have  been 
retained  by  their  owners,  in  order  that  they  may  again 
assist  in  a  similar  transformation  of  fresh  material.  The 
things  so  retained  also  contain  labor  and  abstinence,  and 
hence  are  capital ;  remaining  in  the  hands  of  the  owner, 
they  are  fixed  capital. 

Circulating  capital  is  a  product  in  transition,  not  yet  in 
the  hands  of  the  consumer. 

Fixed  capital  is  a  product  retained  as  an  instrument  in 
the  production  of  other  products.  The  chief  varieties  of 
fixed  capital  are :  9 

(a)  The  tools  and  machinery  incident  to  any  form  of 
production ; 

(b)  The  buildings  and  structures  employed  for  purposes 
of  production. 

To  these  Adam  Smith  has  added  the  improvements  of 
land,  and  personal  skill.     For  reasons  to  be  given  here- 


CAPITAL.  71 

after,  we  have  rather  chosen  to  identify  improvements 
with  the  natural  agent  in  which  they  are  incorporated,  and 
to  altogether  exclude  personal  qualities  from  capital.  The 
test  of  fixed  and  circulating  capital  is  the  inquiry,  Are 
returns  secured  by  the  retention,  or  by  the  transfer,  of  the 
particular  product  ?  Tools,  in  the  hands  of  him  who  uses 
them,  are  fixed,  in  the  hands  of  him  who  manufactures 
them,  circulating,  capital. 

Circulating  capital  includes  — 

(a)  Material,  in  all  its  varieties,  while  still  remaining  in 
the  stages  of  production ; 

(b)  Wages ; 

(c)  Completed  products  retained  for  sale , 

(d)  Products  retained  that  they  may  be  rented. 

To  this  last  class  belong  dwelling  houses,  and  money  in 
the  hands  of  bankers.  In  these  instances  the  article  is 
either  not  liable  to,  or  of  slow  consumption,  and  thus  capa- 
ble of  a  protracted  use.  The  parts,  or  years,  into  which 
this  use  is  divided,  are  sold  separately,  and  the  transaction 
does  not  differ  in  kind  from  a  sale  of  the  entire  use ;  in 
other  words,  of  the  article  itself.  The  rent  paid  for  a 
dwelling  does  not  meet  our  definition  of  capital,  since,  so 
far  as  the  lessee  is  concerned,  it  is  in  actual  consumption, 
and  not  retained  for  production.  Not  so  the  rent  of  any 
tool ;  this  rent  is  a  product  reserved  to  aid  in  production. 

Money  is  placed  by  Adam  Smith  in  circulating  capital. 
In  the  hands  of  the  individual  its  office  is  variable,  and 
it  would  seem  to  belong,  now  to  the  one  class,  and  now 
to  the  other.  It  is  employed  to  purchase  all  the  things 
enumerated  under  each  of  the  two  kinds  of  capital,  and 


72  POLITICAL  ECONOMY. 

hence  is  passing  now  into  fixed,  and  now  into  circulating 
capital,  according  to  the  nature  of  the  commodity  pur- 
chased. While  it  is  retained  unemployed  by  the  producer, 
it  is  not  as  yet  in  the  circuit  of  production,  either  as  mate- 
rial or  instrument,  and  has  not  therefore  assumed  a  defin- 
ite form.  It  remains  in  its  broad  representative  capacity, 
capable  of  any  destination.  Though  capital,  it  is  not 
definitely  and  finally  set  to  perform  any  given  part,  but 
is  open  to  perform  all  parts  in  production.  While  thus 
held  in  abeyance,  not  yet  set  apart  for  any  purpose,  it 
can  hardly  be  said  to  belong  to  either  of  the  two  forms 
of  capital,  since  these  are  distinctions  established  on  the 
relation  in  which  capital  stands  to  the  process  of  produc- 
tion, whether  of  reserved  instrument  or  product  waiting 
transfer. 

Not  thus,  however,  with  the  currency  of  a  nation.  In 
this  broader  field,  money  is  an  instrument,  and,  like  all 
other  instruments,  is  itself  retained  —  fixed  —  to  be  used 
in  the  production  of  something  else.  The  whole  com- 
munity secure  and  retain  in  a  currency  a  certain  amount 
of  money,  sufficient  for  the  exchanges  of  that  community. 
Exchange  is  involved  in  production.  No  commodity  has 
reached  its  highest  ultimate  value  —  is  fully  produced  — 
till,  having  received  every  addition,  from  all  the  processes 
of  production  and  transfer,  it  at  length  rests  with  the  true 
consumer. 

The  instrument  of  exchange,  and  hence  of  production, 
is  money,  —  a  fixed  capital  of  currency,  —  remaining  a 
most  indispensable  and  permanent  means  by  which  the 
flow  of  marketable  commodities  is  sustained. 


CAPITAL,  T3 

The  wheel  of  exchange,  which  interchanges,  and  trans- 
fers all  the  products  of  a  community,  is  sustained  at  the 
general  expense  of  production,  and  constitutes  one  of  its 
most  efficient  and  valuable  instruments, 

$  2.  Capital  is  the  result  of  abstinence ;  but  this  absti- 
nence is  not  perpetual.  All  capital  is  more  or  less  rapidly 
consumed.  The  most  permanent  instruments  are  worn 
out,  and  slowly  incorporate  their  value  into  the  values 
secured  by  their  means.  Consumption  is  the  source  of 
desire,  and  hence  of  effort.  Thither  gravitates  every  pro- 
duct, though  for  a  time  held  back  as  capital,  that  it  may 
reproduce  itself  in  a  harvest,  or  lose  itself  in  a  multi- 
plicity of  new  commodities.  Capital  renews  itself,  and  its 
reliance  is  upon  its  own  profits.  In  each  successful  trans- 
action, it  replaces  itself  and  something  more,  and  in  this 
more  is  found  the  measure  of  its  success. 

The  importance  of  capital  is  involved  in  all  that  has 
been  said  of  its  nature.  We  see  its  presence  in  all  pro- 
duction which  goes  beyond  a  single  transformation,  a 
single  transaction,  —  the  slightest  complexity  or  aggrega- 
tion of  results  marking  its  presence.  But  its  prominent 
advantages  must  be  more  explicitly  marked. 

Instruments  are  the  first  gift  of  capital.  Labor  almos: 
immediately  arms  itself  with  these ;  their  growth  in  effi- 
ciency, variety,  and  complexity,  marks  the  steps  of  civiliza- 
tion; and  man  who,  in  the  outset,  seems  least  the  favorite, 
of  nature,  in  the  end  shows  himself  the  heir  of  all  \>>cr 
treasures,  the  wielder  of  all  her  forces.  What  industry 
does,  she  does  by  her  instruments;  these  destroyed,  she 

7 


74  POLITICAL   ECOXOMY. 

could  not  secure  the  most  beggarly  subsistence  for  a  tenth 
of  her  children. 

Capital  prepares  the  way  for  division  of  labor,  the  second 
most  efficient  agent  of  industry. 

Division  of  labor  is  the  separation  of  a  complex  opera- 
tion into  parts,  more  or  less  elementary,  and  assigning 
these  parts  to  distinct  individuals. 

No  protracted  operations  can  be  performed  by  a  single 
individual  without  capital.  To  say  nothing  of  the  instru- 
ments and  materials  involved,  all  of  which  are  capital, 
there  is  a  constant  increase  of  value  as  the  process  pro- 
gresses ;  and  each  previous  value,  as  soon  as  it  is  realized, 
becomes  capital  in  reference  to  the  succeeding.  But 
when  several  persons  perform  different  operations  in  one 
manufacture,  the  presence  of  capital  becomes  still  more 
obvious.  A  larger  amount  of  material  is  required,  since 
the  labor  of  several,  sometimes  of  very  many,  is  to  be 
employed.  The  partially  completed  product  no  sooner 
passes  from  the  hands  of  one  set  of  workmen  to  those  of 
another,  than  its  place  must  be  immediately  supplied ;  and 
thus,  when  the  entire  series  is  in  full  operation,  a  large 
value  may  be  accumulated  in  the  several  stages  of  manu- 
facture. In  proportion  as  the  division  of  labor  becomes 
more  complete,  the  number  of  laborers,  and  hence  the 
accumulation  of  capital,  will  increase.  The  products,  as 
they  pass  through  the  hands  of  the  several  workmen,  can- 
not well  be,  and  are  not  usually,  owned  by  them.  The 
whole  management  and  supervision  of  a  single  manufac- 
tory are  best  vested  in  one  or  two  individuals,  themselves 
the  owners,  or  their  representatives ;  and  hence,  for  all 


CAPITAL.  75 

extended  operations,  the  aggregation  of  capital  becomes 
very  great. 

The  advantages  of  division  of  labor  are,  that  — 

(a)  It  increases  skill.  Physical  training  is  more  perfect 
as  it  is  more  limited.  A  few  movements,  when  habitual, 
are  performed  with  great  rapidity  and  ease ;  if  often  sus- 
pended and  displaced  by  others,  this  facility  is  lost. 

(b)  It  saves  the  time  of  passing  from  one  kind  of  work 
to  another. 

(c)  It  enables  us  to  employ  labor  not  otherwise  availa- 
ble. Single  processes  may  be  performed  by  those  who 
are  not  capable  of  the  combined  series. 

(d)  It  quickens  invention,  by  limiting  thought  and  mak- 
ing each  operation  a  speciality. 

(e)  It  places  the  consumer  and  producer  in  more  inti- 
mate and  safe  relations.  The  retailer,  the  banker,  the 
commission  merchant,  stand  in  immediate  connection  with 
the  wants  of  community,  and  are  aware  of  their  precise 
amount,  and  by  their  connection,  on  the  other  hand,  with 
the  producers,  enable  these  much  more  readily  and  per- 
fectly to  adapt  the  supply  to  this  demand. 

(f)  It  brings  out  the  best  powers  of  individuals,  com- 
munities, and  nations.  The  individual  has  in  the  manu- 
factory that  which  he  can  do  best,  the  community  that  kind 
of  manufacture  on  which  it  can  most  profitably  enter,  the 
nation  that  kind  of  production  in  which  it  can  most  suc- 
cessfully engage.  Division  of  labor,  in  each  of  these  three 
cases,  leaves  industrial  agents  not  at  cross  purposes,  but 
gives  to  all  their  full  strength. 

A  third  advantage  of  capital  is  intimately  allied  with 


76  POLITICAL  ECONOMY. 

division  of  labor,  —  the  superiority  of  large  operations  over 
small. 

These  operations,  dependent  on  the  increase  of  capital, 
enable  the  division  of  labor  to  be  carried  to  its  full  extent, 
render  practicable  a  more  thorough  economy  in  gathering 
np  the  shreds  and  remnants  of  the  principal  business,  — 
their  larger  amount  giving  value  to  what  was  before 
wasted,  —  and  secure  to  labor  the  best  machinery,  and  to 
laborers  the  fullest  occupation. 

Of  these  four  advantages,  the  last  two  are  the  most 
important.  The  best  machinery,  though  the  most  profita- 
ble, frequently  cannot  be  afforded  except  by  the  larger 
establishments.  A  steam  press  would  ruin  a  village 
paper. 

A  carriage-maker  demands  laborers  in  the  four  depart- 
ments of  iron -work,  wood- work,  painting,  and  upholstery. 
If  the  business  be  so  small  that,  in  any  one  of  these 
occupations,  a  single  hand  cannot  be  constantly  employed, 
the  services  of  that  hand  will  be  obtained  at  a  disadvan- 
tage. An  express  office  requires  a  certain  number  of 
agents;  these  secured,  a  business  which  fully  occupies 
them  involves  but  little  more  expense  than  that  which 
engages  but  a  portion  of  their  time.  The  post  office  also 
furnishes  a  good  illustration. 

A  business  complete  in  its  departments,  and  having  each 
department  fully  occupied,  is  the  most  profitable. 

$  3.  The  agriculturist  is  not  primarily  a  capitalist,  since 
he  chiefly  employs  a  natural  agent,  and  not  reserved  pro- 
ducts.   The  manufacturer  is,  for  the  reverse  reason,  prima- 


CAPITAL.  77 

rily  a  capitalist,  and  this  leads  us  to  our  first  proposition, 
marking  a  tendency  in  this  kind  of  production  opposite  to 
that  pointed  out  in  agriculture. 

The  returns  of  labor  employed  in  any  manufacture  tend  to  increase,  by 
an  increment  greater  than  that  due  to  the  increment  of  labor. 

This  proposition  we  state  in  connection  with  capital,  as 
capital  is  the  soul  of  this  kind  of  labor. 

The  increase  in  the  returns  of  mechanical,  as  opposed 
to  agricultural  labor,  is  chiefly  due  to  two  things,  —  the 
ever  enlarging  career  of  invention,  and  the  accumulative 
pover  of  capital.  The  effect  and  progress  of  invention 
is  finely  illustrated  in  the  manufacture  of  cotton.  Inven- 
tions for  separating  the  wool  from  the  seed,  for  spin- 
ning, and  for  weaving,  have  superseded  and  improved 
upon  each  other,  till,  within  little  more  than  sixty  years, 
the  manufactured  article  has  fallen  to  one-twelfth  of  its 
former  value,  while  the  amount  manufactured  has  increased 
in  about  the  same  ratio.  The  price  has  been  steadily 
forced  clown  by  the  growing  success  of  the  manufacture ; 
nor  have  we,  as  far  as  the  nature  of  the  agents  achieving 
this  success  is  concerned,  reason  to  assign  any  definite 
limits  to  the  movement.  In  the  processes  of  the  arts,  no 
state  is  ultimate  ;  but  the  same  powers  which  secured  the 
present  give  promise  of  something  beyond  it. 

Capital,  also,  ever  lending  itself  in  larger  quantities  to 
labor,  spreads  through  all  the  arts,  perfects  the  internal 
economy  of  each,  and  enables  them  to  unite  in  securing 
those  roads,  canals,  and  harbors,  and  in  establishing  that 
system   of   internal   intercourse  on  which  their   common 

7# 


78  POLITICAL   ECONOMY. 

prosperity  so  much  depends.  It  is  evident,  that  so  long  as 
capital  can  be  profitably  employed,  it  tends,  by  subdivid- 
ing, enlarging,  and  improving  the  processes  of  labor,  to 
add  to  its  productive  powers.  But  it  has  been  denied  that 
capital  is  capable  of  this  extension,  and  thought  that  the 
laws  of  profits  assign  to  it  certain  readily  reached  limits. 
This  leads  us  to  our  second  proposition. 

The  limits  to  the  increase  of  capital  are  — first,  the  number  of  laborers 
at  its  command ;  second,  the  existing  state  of  machinery,  of  mechan- 
ical invention. 

This  proposition  includes  the  idea  that  it  may,  within 
these  limits,  meet  with  a  constant  return  of  profits ;  for 
from  these  profits  the  motives  of  abstinence  are  drawn ; 
when  these  cease,  its  growth  must  cease. 

Before  the  laboring  strength  in  any  community  is  fully 
taken  up,  the  way  is  open  for  the  employment  of  fresh 
capital ;  and  this  capital  may  command  the  needful  assist- 
ance from  labor.  Nothing  is  to  be  apprehended  from  the 
consequent  multiplication  of  commodities.  The  desires 
of  men  are  ever  transcending  that  which  is  possessed; 
and  the  greater  the  increase  in  commodities,  the  more 
universal  the  ability,  by  mutual  exchange,  to  gratify  these 
desires.  As  long  as  products  can  be  created,  they  may 
safely  be  created,  if  not  in  all,  yet  in  the  great  majority  of 
their  several  varieties.  It  is  only  when  capital  has  so 
accumulated  that  it  can  secure  to  itself  no  more  labor,  that 
its  growth  necessarily  ceases.  Tf  an  effort  be  made  to 
force  its  employment  beyond  this  point,  the  new  capital 
comes  into  use  at  the  expense  of  the  old;  there  arises  a 


CAPITAL.  79 

hot  competition  between  capitalists  for  laborers,  till,  by 
the  rapid  fall  of  profits  consequent  thereon,  the  growth 
of  capital  is  effectually  stopped. 

The  immediate  limitation,  then,  to  capital,  is  the  num- 
ber of  laborers  which  a  community  can  furnish ;  the 
ultimate  limitation,  the  number  which  can  be  sustained. 

A  second  element  determining  the  amount  of  capital 
is  the  state  of  invention.  In  proportion  as  the  machinery 
is  poor,  and  the  instruments  employed  feeble,  will  the 
capital  invested  be  small.  Two  hundred  men,  each  in  his 
own  house,  with  a  hand  loom,  will  demand  for  their  con- 
stant occupation  but  a  small  part  of  the  capital  necessary 
to  sustain  a  cotton  factory  with  the  best  machinery,  giving 
full  occupation  to  the  same  number  of  hands.  Each  step 
in  the  arts  usually  involves  a  larger  cost  in  machinery,  and 
always,  by  the  more  rapid  production  which  it  secures,  a 
larger  amount  of  materials  and  of  products,  partial  and 
complete.  If,  therefore,  capital,  in  any  given  state  of 
invention,  should  reach  the  limits  assigned  by  labor,  those 
limits  might  again  be  enlarged  by  any  device  increasing 
the  efficiency  of  labor,  and  thus  the  amount  of  capital  it 
can  employ. 

Because  these  are  the  limits  of  capital,  it  does  not 
follow  that  it  will  necessarily  go  on  to  increase  till  these 
are  reached.  The  extent  and  rapidity  of  its  actual  growth 
in  any  community  will  depend  on  the  strength  of  the 
motives  which  lead  to  abstinence.  These  are  the  variety 
and  utility  of  the  objects  inciting  desire,  the  security  with 
which  they  are  sought  and  enjoyed,  the  amount  of  the 
returns   which   abstinence    secures,    and    the    thoughtful 


80  POLITICAL   ECONOMY. 

forecast  of  the  people.  If  any  of  these  are  wanting;  if 
arts  and  learning  are  incipient,  giving  but  few  enjoyments ; 
if  society  is  anarchical,  giving  but  little  protection ;  if  the 
people  have  not  learned  to  anticipate  and  provide  for  the 
future,  —  there  will  be  a  corresponding  deficiency  in  capi- 
tal, the  great  economic  instrument  by  which  the  stream 
of  earthly  utilities  is  made  to  fill  its  banks. 

The  barrier  of  labor  is  an  elastic  barrier.  Seldom  is 
any  large  community  so  pressed,  that  there  can  be  drawn 
from  it  nothing  more  of  exertion.  Indeed,  such  a  pressure 
is  more  consistent  with  the  lower  and  less  assisted,  than 
with  the  higher  and  better  assisted  states  of  production. 
When  capital  and  invention  are  swelling  production,  labor- 
ers are  borne  above  the  mere  necessities,  and  begin  to 
share  some  of  the  comforts  of  life.  Among  these  comforts 
is  a  certain  amount  of  leisure ;  and  hence,  the  best  con- 
ditioned and  most  productive  community  is  more  elastic 
under  a  transient  pressure  for  labor,  than  one  poor  and  less 
productive.  There  is  much  more  of  reserved  power  in 
the  first  case  than  in  the  second.  The  barrier  of  inven- 
tion is  still  more  elastic.  It  may  retreat  indefinitely,  and 
the  closer  we  press  upon  it,  the  more  likely  it  is  to  retreat. 


CHAPTER   VI. 

EFFECT   OF  LAW  ON  PRODUCTION   THROUGH  LABOR  AND 
CAPITAL. 

$  1.  There  is  one  class  of  laborers  on  whom  the  inter- 
ests of  production  are  peculiarly  dependent,  —  rulers,  — 
the  makers  and  executors  of  law.  As  it  is  under  the 
shadow  of  government  that  labor  is  busy,  and  capital  is 
accumulated,  —  that  the  two  go  forth  to  fresh  productive 
conquests,  —  Political  Economy  interests  itself  in  the 
action  of  government,  so  far  as  this  action  affects  her 
own  agents. 

The  chief  office  of  government,  in  connection  with 
production,  is  protection,  —  is  to  furnish  an  open  field  in 
which  it  may  bring  forward  its  own  motives,  guide  its 
action  by  its  own  laws,  and  enjoy  its  own  reward.  The 
economic  action  of  men  is  so  far  social,  is  so  far  in  har- 
mony with  those  interests  which  it  is  the  especial  office 
of  government  to  cherish,  as  not  ordinarily  to  demand  any 
constraint  or  coercion  beyond  the  common  criminal  code. 
Not  only  does  the  line  of  action  marked  out  by  economic 
science  run  parallel  with  the  higher  interests  of  man,  and 
minister  to  them,  but  this  lower  interest  is  amply  able  to 
furnish  the  safest,  most  general,  and  most  efficient  motives, 
drawn  from  all  departments  of  enjoyments,  for  effort  in  its 


82  POLITICAL  ECONOMY. 

own  field.  The  impulse  which  most  effectually  works  the 
forces  of  production  is  an  internal  impulse,  drawn  from  its 
own  rewards  and  the  relations  of  those  rewards  to  the 
civilization  and  science  of  the  times.  Of  all  departments, 
the  economic  is  the  most  thoroughly  self-sustaining,  in  the 
strength  and  universality  of  its  motives,  and  least  of  all 
needs  aid  from  without.  Money  secures  or  increases 
nearly  all  our  enjoyments;  hence  there  is  no  province  of 
action  from  which  it  does  not  bring  inducements  to  effort. 
The  absorbing  love  of  gain,  ever  ready  to  pass  into  ava- 
rice, and  withhold  those  very  ministrations  to  the  social 
good  for  which  it  primarily  exists,  can,  first  and  best  of  all 
our  impulses,  be  emancipated  from  the  patronage  of  gov- 
ernment. Indeed,  it  is  with  its  own  products  alone  that 
governments  undertake  to  stimulate  production,  and  the 
increased  reward  bestowed  at  one  point  is  plundered  from 
another  portion  of  its  own  field.  Industry  best  knows  how 
to  apportion  her  own  rewards,  and  is  neither  profited  nor 
pleased  with  any  interference.  If  she  were  wrong  in  her 
principles  of  distribution,  the  difficulty  would  be  most 
radical,  and  we  might  be  compelled  to  take  the  whole 
department  into  our  hands,  and  force  the  regulations  of 
civil  polity  into  the  apportionment  of  all  products.  In  that 
case,  we  should  have,  instead  of  the  quiet  and  firm  action 
of  natural  forces,  the  tardy  and  defective  action  of  compli- 
cated and  artificial  regulations.  But  we  cannot  well  inter- 
fere at  any  one  point,  deny  safety  to  any  one  of  our 
natural  economical  forces,  and  leave  the  rest  in  full  au- 
thority.    The  right  of  one  is  the  right  of  all. 

The  ordinary  action,  then,  of  economic  causes,  neither 


OPERATION    OF   LAW   ON    LABOR   AND    CAPITAL.          83 

demands  restraint  nor  incitement;   yet   government   has 
much  to  do  with  production  beyond  its  protection. 

Society  is  a  combination,  whose  agent  and  representa- 
tive is  government.  Many  labors  which  are  supplemental 
to  production  devolve  rightly  on  no  individual  producer. 
Many  of  these,  if  performed  by  an  individual,  or  combina- 
tion of  individuals,  can  make  them  no  recompense,  or  a 
recompense  secured  with  much  general  vexation.  This 
class  properly  falls  on  society  as  a  whole,  and  hence  on 
government,  as  its  representative.  This  class  is  very 
numerous.  Here  belong  the  construction  of  roads,  light- 
houses, water-breaks,  the  clearing  of  harbors  and  rivers, 
the  establishment  of  a  currency,  and  of  a  post  office  de- 
partment. Those  internal  improvements,  from  which  no 
income,  or  no  income  corresponding  to  the  cost,  and  just 
for  the  parties,  can  be  secured,  seem  properly  to  fall  to 
government.  All,  offering  fair  inducements  to  private 
capital,  are  more  safely  and  economically  managed  under 
the  direction  of  private  and  interested  individuals. 

$  2.  In  connection  both  with  the  beneficial  and  injurious 
action  of  civil  law  on  production,  we  have  the  subject  of 
monopolies.  A  monopoly  is  any  kind  of  process,  or  instru- 
ment of  production,  restricted,  in  whole  or  in  part,  by  law. 
Nothing  should  be  included  within  the  term  which  does 
not  involve  a  right  in  addition  to  those  natural  rights  pro- 
tected by  civil  law.  There  is  a  sense  in  which  all  property 
may  be  termed  a  monopoly,  as  its  possession  and  use  are 
necessarily  exclusive,  and  that  which  is  one  man's  cannot 
be  open  to  the  occupation  of  another.     Thus  land  is  called 


84  POLITICAL   ECONOMY. 

a  great  monopoly.  It  is  a  monopoly,  and  the  worst  form 
of  monopoly,  as  we  have  already  shown,  if  its  acquisition 
and  transfer  are  restricted  by  law,  but  no  more  a  monopoly 
than  any  other  species  of  property,  if  its  possession  is 
open  to  all.  Nothing  is  gained  by  the  term  monopoly,  if 
it  is  to  be  made  to  include  every  economical  advantage, 
from  whatsoever  source  derived,  since  all  the  appropriated 
powers  of  production  would  thus  be  monopolies,  the  very 
act  of  appropriation  involving  exclusion.  Of  these  pow- 
ers, a  part  is  restricted  by  nature  to  certain  owners,  —  such 
are  personal  qualities;  another  part  is  left  open  to  the 
general  effort,  —  such  is  land.  Society  sometimes  goes 
beyond  the  restrictions  of  nature,  and  establishes  restric- 
tions of  her  own ;  these  give  rise  to  monopolies. 

The  effect  of  a  monopoly  is  to  limit  the  production  in 
the  department  to  which  it  applies,  and  thereby  to  raise 
the  price  and  profits.  Monopolies  are  illegitimately  con- 
ferred, as  a  matter  of  favoritism,  government  losing  sight 
of  the  equality  of  citizens,  and  distinguishing  between 
them ;  are  legitimately  conferred,  as  a  compensation  for  a 
corresponding  service  done  to  production.  Of  the  first 
kind,  is  the  exclusive  trade  in,  or  manufacture  of,  any 
article;  of  the  second,  all  patent  and  copy  rights.  In- 
ventors and  writers,  though  among  the  most  valuable  of 
laborers,  are  not  able,  from  the  nature  of  the  product  real- 
ized, to  retain  its  immediate  pecuniary  advantages.  To 
relieve  the  hardship  of  these  results,  government  steps  in, 
and,  giving  to  the  individual,  for  a  limited  period,  the 
exclusive  disposition  of  his  product,  restores  a  part  of  the 
profits. 


OPERATION   OF   LAW   ON   LABOR  AND   CAPITAL.         85 

The;  rights  of  corporations,  so  far  as  they  pertain  to  pro- 
duction and  are  bestowed  at  the  option  of  government,  are 
monopolies.  A  railroad  company  is  a  monopoly,  and  a 
close  monopoly,  till  parallel  roads  are  authorized.  Banks, 
when  charters  are  granted  on  the  fixed  conditions  of  a 
banking  law,  are  open  monopolies  ;  —  monopolies,  since  the 
restrictions  are  assigned  by  law;  open  monopolies,  since 
these  restrictions  are  the  same  for  all. 

The  monopolies  conferred  in  acts  of  incorporation  are 
usually  such  as  are  designed  to  give  either  greater  effi- 
ciency or  safety  to  production.  Either  the  corporate  body, 
by  the  legal  rights  conferred  upon  it,  is,  without  infringing 
on  the  industry  or  rights  of  others,  enabled  more  readily 
and  rapidly  to  push  its  own  enterprises,  or  the  common 
interests  are  watched  over  and  protected  from  the  heedless 
schemes  of  individuals,  by  requiring  the  sanction  of  a 
legislative  act.  Of  the  first  class  are  all  those  partner- 
ships and  joint  stock  companies,  by  which  small  capitals 
are  gathered  into  an  effective  form,  and  the  greater  enter- 
prises of  industry  pushed  rapidly  onward.  These  combine 
the  scattered  energies  of  production,  and  secure  an  easy 
victory  over  obstacles  too  great  for  individnal  strength,  and 
open  the  way  for  a  vast  amount  of  more  limited  enter- 
prise. They  are  the  formidable  enginery  of  industry, 
which  accumulates  about,  and  besieges  every  fresh  obsta- 
cle, till  it  is  overcome. 

To  the  second  class  belong  those  corporations  which, 
while  conferring  a  benefit,  demand  the  watchful  eye  of  the 
community,  lest  they  inflict  a  greater  injury.  Few  things, 
as  we  shall  more  clearly  see  at  a  later  point,  are  of  greater 

8 


86  POLITICAL  ECONOMY. 

importance  to  production  than  a  common,  a  safe,  a  suffi- 
cient, and  a  firm  currency.  When  the  currency  is  depen- 
dent upon  a  banking  system,  the  common  good  demands 
that  banks  should  be  rigorously  subjected  to  all  those 
restrictions  which  the  high  and  critical  nature  of  their 
trust  requires  ;  and  hence,  that  this  kind  of  effort  should 
be  open  to  the  enterprise  of  all,  only  within  limits  con- 
sistent with  the  interests  of  all.  It  being  one  of  the  more 
important  functions  of  government  to  provide  an  adequate 
currency,  the  banking  business  is  everywhere  subjected  to 
restrictions,  which  constitute  it,  in  a  greater  or  less  degree, 
a  monopoly 

Railroads,  involving  in  their  construction  the  violation 
of  the  ordinary  rights  of  individuals,  can  only  be  author- 
ized by  the  voice  of  the  community  whose  interests  are 
thereby  affected.  The  government,  the  representative  of 
an  organized  society,  may  suspend  the  rights  of  individuals, 
and  force  the  sale  of  private  property,  for  a  public  purpose. 
No  such  power  can  belong  to  individuals  or  to  companies, 
save  only,  as  by  a  special  incorporating  act,  it  has  been 
imparted  to  them  for  a  limited  and  particular  purpose. 
This  new  and  additional  right  vests  in  railroad  companies, 
by  virtue  of  a  specific  legislative  act,  and  constitutes  them 
monopolies.  That  those  who  possess  a  monopoly  are  not 
always  certain  of  unusual  profits,  is  seen  in  this  example. 

Of  legitimate  monopolies,  we  have  two  classes:  the 
restriction  in  use  or  in  sale  of  a  discovery,  an  invention,  a 
literary  production,  to  him  whose  it  is ;  the  restriction  of 
certain  departments  of  production  by  conditions  necessary 
for  the  safety  of  all. 


OPERATION   OF   LAW   ON   LABOR   AND    CAPITAL.         87 

In  the  first  class,  the  rights  of  the  individual  are  secured, 
and  encouragement  given  to  a  most  valuable  class  of 
laborers.  But  as  their  rights  are  guaranteed  by  law,  and 
are  solely  dependent  upon  its  protection,  it  is  evident  that 
the  law-giver  is  to  settle,  in  view  of  common  interests, 
what  length  of  use  constitutes  adequate  compensation 
and  encouragement.  The  right,  as  a  practical,  available 
right,  is  the  offspring  of  law,  and  hence  must  conform  to 
the  end  of  law,  —  tjie  common  good.  This  it  is  which 
marks  the  limits  within  which  law  shall  define  and  protect 
a  right,  left  by  nature  undefined  and  unprotected.  No 
more  just  and  fitting  bounty  can  be  offered  for  invention 
than  protection,  for  a  limited  period,  in  the  exclusive  use 
of  the  thing  invented. 

The  second,  like  the  first  class  of  monopolies,  are  estab- 
lished by  government,  for  the  stimulus  and  protection  of 
industry.  A  railroad  charter,  judiciously  granted,  places  in 
the  hands  of  producers  a  fresh  power;  judiciously  with- 
held, protects  private  property  from  the  plunder  of  need- 
less speculation.  To  decide  where  the  best  interests  of 
production  lie,  whether  in  the  bestowing  or  withholding  of 
a  railroad,  is  manifestly  the  office  of  those  whose  duty  it 
is  to  represent  and  protect  those  interests.  It  is  evident, 
that  this  class  of  monopolies  are  obnoxious  when  bestowed 
with  partiality,  and  thus  removed  still  more  than  the  com- 
mon good  requires  from  general. competition. 

Production  demands  that,  as  far  as  possible,  the  same 
conditions  should  be  fixed  for  all,  and  that,  within  these 
conditions,  the  arena  of  competition  should  again  be 
opened.     If  a  general  banking  law  is  safe,  —  a  point  we 


88  POLITICAL   ECONOMY. 

are  not  yet  prepared  to  discuss,  —  it  is  more  consonant 
with  the  general  spirit  and  methods  of  production,  than 
the  granting  of  private  powers  by  special  acts. 

A  third  and  illegitimate  use  of  monopolies  is  the  pro- 
tection of  the  individual,  in  any  department  of  effort,  from 
the  competition  natural  to  that  department,  when  such 
protection  does  not  aim  to  secure  a  common  good. 

This  is  a  pernicious  suspension  of  the  laws  which  com- 
mercial intercourse  has  established  for  itself,  and  is  gather- 
ing up  a  portion  of  the  inducements  for  general  productive 
effort,  that  it  may  afterwards  scatter  them  as  the  seeds  of 
arrogance  and  indolence. 

$  3.  Another  direction,  in  which  government  has  usually 
deemed  its  aid  requisite  to  production,  has  been  in  estab- 
lishing a  rate  per  cent,  for  the  use  of  money.  Its  action 
here  is  entirely  anomalous.  There  is  elsewhere  furnished 
no  parallel.  Price,  in  all  other  departments,  is  left  to 
arrange  itself  according  to  its  own  laws,  and,  though  there 
is  here  no  suspension  of  the  natural  forces  at  work,  it  is 
suddenly  discovered  that  they  can  no  longer  be  trusted, 
and  a  single  department,  under  the  action  of  precisely  the 
same  laws  as  every  other  department,  is  taken  out  of  its 
natural  relations,  and  given  over  to  the  discretion  of  legis- 
lators. This  action  can  rest  on  no  principle ;  it  does  either 
too  much  or  too  little.  If  we  regulate  price,  we  must  reg- 
ulate'it;  if  nature  regulates  it,  she  must  regulate  it:  we 
cannot  expect  to  compound  the  matter  with  her. 

Nor  have  the  success  of  these  efforts  been  such  as  to 
support  a  limping  theory.     No  law  is  more  readily,  is  more 


EFFECT  OF   LAW  ON   LABOR  AND   CAPITAL.  89 

constantly  violated  than  a  usury  law,  and  that,  too,  by  pre- 
cisely the  class  of  persons  against  whom  these  laws  are 
directed.  They  catch  the  simple  and  the  honest;  the 
shrewd  and  the  dishonest  readily  escape.  The  meshes  of 
the  net  are  never  tight  enough  to  hold  anything  but  a  little 
vagrant  drift-wood.  The  few  that  are  punished  are  an- 
gered by  the  injustice  of  the  law;  the  many  that  escape 
laugh  at  its  imbecility.  Nor  is  the  impotence  of  this  class 
of  laws  their  chief  defect;  it  is  rather  their  principal 
defence.  Were  they  efficient,  they  would  be  yet  more  per- 
nicious. They  aim  to  equalize  the  price  of  money,  placing 
it  at  fixed  rates  in  the  hands  of  all.  When  they  have  any 
influence,  their  effect,  by  counteracting  natural  forces,  is 
just  the  reverse  of  this.  If  money,  in  reference  to  the 
demand,  is  abundant  in  any  community,  its  value  is 
thereby  lessened.  If  natural  forces  were  left  to  them- 
selves, this  state  of  things  would  occasion  a  fall  in  the 
rate  of  interest,  and,  enticing  enterprise  by  the  easy  terms 
of  capital,  would  prepare  the  way  for  that  accelerated  ex- 
ertion which  restores  price  to  its  ordinary  level.  But  a 
law,  retaining  the  price  of  money  at  a  rate  beyond  its  true 
value,  renders  all  borrowing  a  loss;  and  money,  cut  off 
from  its  natural  remedy  of  forcing  a  market  by  a  fall  of 
price,  is  left  to  accumulate  in  the  hands  of  holders,  and 
sinks  much  beyond  the  mark  which  the  real  state  of  things 
made  necessary. 

Nor  is  such  a  law  more  fortunate  in  its  efforts  to  give 
money,  at  all  times,  at  an  easy  rate,  to  those  who  need  it. 
If  money  is  really  worth  something  more  than  the  law 
suffers  to  be  received  for  it,  the  holder  will  struggle,  as  far 

8* 


90  POLITICAL   ECONOMY. 

as  possible,  to  employ  it  himself,  that  he  may  realize  this 
additional  per  cent,  and  a  market,  already  too  dry,  will 
become  dryer  and  dryer,  till  not  a  drop  can  be  extorted, 
without  the  illegal  proffer,  not  simply  of  the  true  value, 
but  of  this  value  as  enhanced  by  the  odium  and  additional 
risk  of  a  surreptitious  business.  And  all  this  supplaces 
those  natural  forces  which,  by  the  additional  profits  and 
free  circulation  of  money,  would  have  shortly  restored  it 
in  amount,  and  hence  reduced  it  in  rate  per  cent,  to  the 
general  level.  The  simplest  and  the  best  interest  law  is 
that  which  determines  the  rate  of  interest  to  be  implied 
when  no  rate  has  been  expressed.  The  next  most  simple 
law  is  that  which  leaves  individuals  to  give  and  receive 
"whatever  rate  they  may  agree  upon,  but  refuses  to  collect, 
by  legal  process,  any  interest  higher  than  a  given  rate. 
But  the  law  in  no  direction  collects  a  fraudulent  debt,  and 
it  is  not  easy  to  see  why  here,  more  than  elsewhere,  a 
given  price  should  be  taken  as  prima  facie  evidence  of 
fraud. 

$  4.  In  connection  with  the  effect  of  law  on  labor  and 
capital,  there  arises  the  vexed  question  of  how  far  any 
country  should  protect  its  industry  from  the  competition  of 
other  countries.  So  far  as  the  natural  forces  at  work  in 
the  world  tend  to  secure  or  mark  out  any  course  of  action, 
it  is  evident  that  they  look  to  a  free  exchange.  Some 
forms  of  industry  are  made  impossible,  save  in  particular 
climates  and  soils;  others  differ  greatly  in  the  facilities 
different  places  afford  them ;  and  even  those  processes  of 
art,  capable  of  the  most  universal  exercise,  are  in  their 


EFFECT   OF   LAW   ON   LABOR  AND    CAPITAL.  91 

complete  success  intimately  connected  with  natural  char- 
acteristics and  the  advantages  of  position.  These  intrinsic 
differences,  which  cannot  be  overcome,  and  can  only  be 
partially  removed,  result  in  a  great  variety  of  productive 
power.  If  the  highest  aggregate  of  production  is  to  be 
reached,  these  powers  must  be  developed,  each  according 
to  its  own  highest  susceptibility,  and  the  distribution  of 
the  products  of  industry,  now  the  most  numerous  possi- 
ble, be  left  to  a  free  exchange.  To  this  action  the  desires 
of  men  tend.  Each  nation  naturally  chooses  for  itself 
that  kind  of  industry  which  it  deems  most  productive,  and 
with  the  products  so  traffics,  as  most  fully  to  supply  all 
its  wants.  Men  do  not  accept  the  less,  in  place  of  the 
greater  gratification,  and  in  this  course  of  action  lies  their 
largest  power  of  purchase,  and  hence  of  gratification. 

The  system  of  exclusion  and  protection,  on  the  other 
hand,  is  wholly  the  offspring  of  law,  removing  itself  by  an 
artificial  force  from  the  operation  of  the  general,  natural, 
and  inherent  forces  at  work.  Laws  of  protection  there- 
fore, as  superseding  natural  laws,  always  demand  either 
specific  reasons  and  special  grounds  of  justification,  mark- 
ing and  justifying  them  as  exceptions,  or  a  solid  and 
sweeping  proof,  showing  that  a  natural  tendency,  as  nat- 
ural law,  is  here  at  work,  which  is  radically  vicious,  and 
requires  to  be  systematically  overcome.  In  either  case  the 
burden  of  proof  lies  with  those  bringing  forward  these 
affirmations.  Such  laws  must  expect,  at  every  step,  to 
be  challenged  for  a  reason,  and,  failing  to  render  it  in  full 
weight,  thereby  to  be  destroyed. 

Such  laws,  when  tested  by  the  general  principles  of 


92  POLITICAL   ECONOMY. 

Political  Economy,  are  not  defensible.  The  considera- 
tions which  strictly  belong  to  this  science  are  only  those 
which  pertain  to  production,  to  highest  profits.  Anything 
which  ultimately  lessens  these  cannot  rest  for  its  support 
on  this  department,  for  here  the  sentence  is  pronounced 
upon  it,  unprofitable.  All  that  Political  Economy  has  to 
say  in  reference  to  any  course  of  action  is,  profitable, 
unprofitable.  Much  that  is  immediately  and  ultimately 
unprofitable,  it  may  be  well  should  be  done  ;  but  we  have 
for  it  no  economic  inducement.  Much  that  is  immediately 
profitable,  —  and  may  be  ultimately  so,  using  the  word  in 
its  restricted  sense,  —  is  to  be  foregone,  for  an  ethical 
injunction  may  overrule  it.  Government  has  other  inter- 
ests before  it  besides  those  of  production,  interests  which 
may  often  modify,  may  sometimes  set  aside,  these  last. 
Political  Economy  needs  only  to  be  careful,  to  present  a 
true  table  of  profits  and  losses,  and  to  value  correctly  the 
action  of  government  in  these  respects. 

The  aggregate  amount  of  products,  of  utilities,  which 
the  industry  of  the  world  can  at  any  time  create,  is  the 
measure  of  the  productive  power  of  that  time,  of  that 
which  she  can  furnish  for  human  enjoyment  Any  scheme 
by  which  the  common  stock  is  lessened,  weakens  produc- 
tion, is  unprofitable,  and  must  result  somewhere  in  a 
smaller  amount  of  enjoyments.  If  any  branch  of  manu- 
facture, which  it  is  desired  to  introduce  into  a  country,  is 
equally  productive  with  other  branches  already  introduced, 
it  needs  no  protection ;  if  it  is  not  equally  productive,  then 
that  labor  which  is  withdrawn  from  more  productive  de- 
partments to  be  employed   in  this   department,  realizes 


EFFECT   OF   LAW   ON   LABOR   AND    CAPITAL.  93 

a  less  number  of  products,  and  the  aggregate  of  produc- 
tion is  diminished.  No  kind  of  labor  seeks  protection 
save  that  which  is  to  be  expended  at  a  disadvantage ;  and, 
so  expended,  that  disadvantage  betrays  itself  in  diminished 
commodities.  If  this  immediate  loss  is  to  be  compensated 
by  any  additional  skill  in  the  individual,  by  any  aptitude 
or  love  on  his  part,  by  any  additional  profits  to  accrue 
when  the  business  shall  have  acquired  momentum,  —  all 
these  and  kindred  motives  appeal  to  private  interest,  and 
will  tend,  to  their  full  extent,  to  force  enterprise  in  the 
proposed  direction,  and  will  so  force  it,  when  collectively 
they  can  fairly  secure  a  balance  in  favor  of  the  new  em- 
ployment. 

It  is  only  when,  everything  considered,  there  is  yet  an 
unrequited  loss  to  be  borne,  that  industry  asks  for  protec- 
tion; and  this  protection  granted  does  not  annihilate  the 
loss,  but  only  scatters  and  divides  it.  If  there  is  no  loss, 
why  grant  protection  ?  if  there  is  a  loss,  why  accept  and 
secure  it  by  a  special  enactment?  The  answer  must  come 
outside  of  Political  Economy. 

The  loss  which  a  protective  law  occasions  falls  to  its 
full  extent  on  the  community  included  within  the  protec- 
tion. A  loss  is  inflicted  on  those  communities,  the  markets 
for  whose  products  are  thereby  straitened ;  but  this  is  a 
loss,  in  addition  to  the  first  loss,  which  is  exclusively  borne 
by  the  community  in  which  the  mischief  originated.  In 
that  community,  a  smaller  number  of  products  is  realized, 
a  smaller  number  is  to  be  divided;  and  hence,  whether 
consumed  directly  or  employed  in  purchase,  they  yield  a 
less  amount  of  enjoyment.    The  owner  of  the  new  factory 


94  POLITICAL   ECONOMY. 

is  raised  to  the  general  level ;  but  he  is  so  raised  at  the 
expense  of  that  level.  He  purchases  other  commodities, 
at  the  same  advantage  as  before ;  but  all  others  purchase 
his  commodity  at  a  disadvantage.  Protection  shields  the 
laborer  from  loss  by  raising  the  price  of  his  commodities, 
thereby  assessing  the  deficiency  upon  all  who  consume 
them.  It  is  simply  forcing  an  equal  distribution  of  pro- 
ducts now  rendered  less  in  amount.  A  country  cannot 
destroy  its  losses  by  footing  its  own  bill. 

It  is  evident,  that  an  industry  so  nursed  will  not  rapidly 
learn  to  walk  by  itself.  Its  motives  to  energy  and  econ- 
omy are  in  part  removed.  The  law  has  undertaken  to 
sustain  its  profits  at  the  common  level,  and  if  they  rise 
above  that  level  will  probably  feel  bound  to  reduce  them. 
If  its  profits  are  going  down,  it  can  readily  ask  for  more 
protection;  if  they  are  going  up,  enough  will  be  found 
to  ask  for  less.  It  is  not  as  any  other  business.  Its 
enterprise  can  do  itself  less  good,  its  negligence  less 
harm. 

§  5.  There  are  certain  considerations,  at  times  urged 
by  those  who  claim  that  industry  demands  protection 
against  free  competition,  which  are  of  a  more  indeter- 
minate nature,  and,  for  that  reason,  do  their  work  only 
the  more  perfectly. 

A  weight  which  has  not  yet  itself  been  weighed,  in 
some  calculations,  may  be  a  more  convenient  element 
than  determinate  and  fixed  quantities.  Among  these 
real  but  more  indeterminate  forces  is  the  following.  The 
entire  prosperity  of  a  community  is  intimately  connected 


EFFECT   OF  LAW   ON   LABOR  AND   CAPITAL.  95 

with  the  number  and  variety  of  its  employments.  The 
machinery  of  social  life  is  thus  kept  in  active  play. 
Every  kind  of  talent  and  tendency  has  a  corresponding 
impulse  and  opportunity.  Such  a  society  is  more  com- 
plete within  itself.  Its  exchanges  are  more  rapid,  and 
involve  less  of  mechanical  transfer.  A  public  disaster 
is  never,  under  such  circumstances,  so  broad  and  deep, 
since  the  evils  incident  to  one  department  are  not  com- 
mon to  all,  and  cannot,  to  the  same  extent,  affect  all. 
The  vitality  of  production  is  more  thoroughly  sustained, 
many  directions  successively  inviting  the  shifting  spirit  of 
enterprise. 

These  being  the  undoubted  attendants  upon  a  variety 
of  productions,  how  far  ought  the  artificial  methods  of  pro- 
tection to  be  employed  to  secure  this  variety  ?  Shall  we 
establish  a  legal  conservatory,  and  transfer  thither  every 
exotic,  thus  hoping  to  enrich  our  native  varieties,  and 
more  completely  employ  our  resources?  It  seems  to  us 
that  the  natural  forces  at  work  settle  this  question,  pre- 
cisely as  they  settle  the  question  involved  in  the  above 
comparison.  If  a  plant  is  a  hot-house  plant,  its  culture 
must  be  left  to  curiosity  and  taste ;  it  can  hardly  add  to 
the  permanent  resources  of  a  country.  The  question, 
whether  it  be  a  hot-house  plant  or  not,  is  determined  by 
a  cautious,  yet  fair,  exposure  to  the  influences  of  soil  and 
climate  ;  if  these  adopt  it,  it  is  well;  if  they  reject  it,  we 
can  protect  it  against  them,  as  a  languishing  exotic,  only 
by  the  most  persevering  and  costly  effort.  To  the  ordeal 
to  which,  in  the  end,  it  must  be  subjected,  if  it  is  to  do 
us  any  good,  let  it  be  subjected  at  once,  and  let  nature, 


96  POLITICAL   ECONOMY. 

who  can  alone  answer  wisely  for  herself,  decide  whether 
this  is  an  admissible  or  inadmissible  variety  of  vegetable 
life. 

The  economic  world  has  not  less  potent  agencies  which 
define  the  bounds  of  its  flora,  which  determine,  by  inevasi- 
ble  laws  of  profit,  the  localities  of  its  several  kinds  of 
production ;  and  this,  though  sometimes  less  obviously, 
not  less  fixedly,  in  the  mechanical  than  in  the  agricultural 
department.  Each  of  these,  though  differing  widely  in 
their  breadth,  has  limits  which,  the  times  and  circumstances 
being  given,  cannot  be  safely  overpassed.  The  culture  of 
years  cannot  make  the  silk  business  indigenous  to  Eng- 
land ;  it  is  an  exotic  still.  A  business  that  is  to  be  hardy 
and  profitable  must  be  able  to  meet  and  grow  under  the 
laws  of  trade,  to  sustain  a  vigorous  life  under  the  natural 
forces  of  its  locality. 

All  the  advantages  above  enumerated  undoubtedly 
belong  to  a  variety  of  healthy  production,  but  not  to  a 
variety  so  artificial  and  forced  that  many  of  its  parts  are 
sustained  by  taxing  the  remainder.  Such  plants  are  para- 
sites, not  branches;  eating  up  strength,  not  giving  it. 
Any  nursling  of  the  mechanical  arts  will  at  once  be  sur- 
rounded and  aided  by  all  the  advantages  which  naturally 
appertain  to  a  new  variety.  These  will  add  themselves 
to  the  favoring  influences,  and  help  to  determine  the 
question  in  favor  of  the  new  comer.  A  fresh  impulse  of 
individual  enterprise  has  given  rise  to  it,  and  will  come  in 
to  sustain  it;  its  market  is  just  at  hand.  Entire  success 
is  not  immediately  demanded ;  a  general  and  affectionate 
interest  watches  over  it.     If  all  these  natural  forces,  con- 


EFFECT  OF  LAW   ON  LABOR  AND   CAPITAL.  97 

curring  with  its  own  inherent  strength,  cannot  naturalize 
it,  is  it  fitting  that  law  should  make  of  it  a  permanent 
pensioner  ? 

It  may  be  said  that  we  have  no  right  to  this  word, 
permanent.  We  certainly  have  not  in  all  instances.  All 
that  the  experiment,  of  which  we  have  spoken,  really 
decides  is,  that  the  new  art  cannot  now  live.  What 
change  there  may  be  in  the  world  of  profits,  making  its 
future  life  possible,  is  a  matter  for  still  further  experi- 
ment. But  certainly  the  mere  fact  of  present  failure  is 
not  a  promise  of  better  success  hereafter;  and,  if  this 
success  shall  come,  the  principles  here  brought  forward 
will  not  less  apply  to  the  intervening  period.  It  may  be 
worth  our  while  to  strike  when  the  iron  is  hot,  but  equally 
worth  our  while  to  wait  till  that  time  comes. 

The  difficulties  which  oppose  the  introduction  of  a  new 
branch  of  manufacture,  and  which  can  be  removed,  are  a 
want  of  skill  and  of  capital.  The  first  of  these  is  by  no 
means  of  so  formidable  a  character  as  to  be  insuperable  to 
individual  enterprise,  nor  shall  we  fail  to  suggest  the  man- 
ner in  which  government  can,  at  this  point,  best  lend  aid. 
The  second  of  these,  capital,  cannot  be  conferred  by 
government,  nor  by  undertaking  an  unprofitable  business. 
Let  capital  abide  in  its  most  profitable  channels,  till  it 
there  secures  volume  with  which  to  overflow  into  other 
departments.  A  premature  effort  necessarily  delays  per- 
manent success.  If  there  are  other  difficulties  besides 
these,  they  inhere  in  the  nature  of  the  case,  and  it  is 
useless  to  waste  ourselves  upon  them. 

But  we  have  said  that  government  can  aid  the  advance 

9 


98  POLITICAL   ECONOMY. 

of  skill  and  industry.  Instruction  is  largely  her  depart- 
ment. Let  her  aid  in  giving  mechanical  and  agricultural 
knowledge.  Let  her  establish  institutes  where  men  may 
be  trained,  who  shall  be  able  to  anticipate  mechanical  and 
industrial  possibilities,  to  experiment  upon,  and  point  out, 
the  best  methods  of  advance,  and  to  guide  and  quicken 
activity  in  all  profitable  directions.  Thus,  that  which  skill 
can  give  us  will  be  added  to  that  which  nature  has  given 
us,  and  this  is  all  that  we  can  get. 

But  this  concentration  of  the  various  kinds  of  produc- 
tion has  its  limits.  The  principle  of  the  division  of  labor 
comes  in  to  modify  and  restrain  it.  This  principle  is  not 
less  applicable  between  nations  than  between  individuals 
and  communities  ;  indeed,  it  has  been  here  so  secured  and 
enjoined  by  the  varying  natural  gifts  of  different  countries, 
that  it  is  impossible  wholly  to  set  it  aside.  When  the 
danger  of  its  neglect,  arising  from  mutual  competition, 
seemed  the  greatest,  the  imperative  has  been  made  the 
most  absolute,  and  every  civilized  nation  must  go  abroad 
for  a  large  share  of  its  comforts.  Nor,  in  the  conflict 
which  must  exist  in  this  large  field,  between  a  concentra- 
tion of  labor  and  division  of  labor,  can  we  expect  for  wiser 
and  better  results  than  those  which  arise  from  a  practical 
acceptance  of  the  adjustment  given  us  in  the  real  state 
of  things,  a  careful  culture  of  our  own  resources,  and  an 
honest  purchase  of  that  which  can  best  be  purchased. 
Nations  are  not  less  requisite  to  stimulate  and  vivify 
nations,  than  individuals  to  quicken  and  reward  indi- 
viduals. 

National  absorption,  and,  following  therefrom,  national 


EFFECT    OF   LAW   ON    LABOR   AND    CAPITAL.  99 

isolation,  by  destroying  the  incitements  and  checks  which 
exist  between  peaceful  and  rival  states,  is  certainly  as 
ruinous  to  production  as  the  much  abhorred  separation  of 
its  distinct  departments.  The  variety  and  breadth  of  pro- 
duction due  to  the  community,  to  the  nation,  are  but  an 
image,  on  an  inferior  scale,  of  the  variety  and  breadth  of 
production  due  to  the  whole  earth.  Nor  in  this  higher 
relation  is  the  whole  less  necessary  to  the  parts  than  in 
the  lower.  There  is  no  safe  regimen  for  the  member 
which  does  not  know  it  to  be  a  member,  and  regard  the 
health  of  the  body  to  which  it  belongs. 

$  6.  Another  argument  often  urged,  and  capable  of  the 
same  easy  expansion  and  uncertain  estimate,  is,  that  pop- 
ulation follows  food ;  hence,  that  the  largest  population 
and  the  most  national  wealth  can  only  be  realized  by  that 
system  of  protection  which  establishes  a  home  market 
sufficient  for  the  consumption  of  all  our  own  food.  Popu- 
lation simply,  can  hardly  be  regarded  as  an  advantage.  It 
is  only  a  population  possessing  the  same  physical  and 
intellectual  resources  which  belong  to  us  at  present,  or 
resources  greater  than  these,  that  can  add  to  our  happiness 
and  strength.  In  a  very  limited  territory,  liable  to  be 
subjected  by  powerful  neighbors,  mere  numbers  may  be  a 
thing  of  importance.  Not  with  most  nations;  these  are 
quite  as  liable  to  be  cursed  as  .blessed,  by  the  density  of 
their  population.  A  wise  production  does  not  aim  at  a 
surfeit  of  human  life,  but  at  the  most  ample  and  adequate 
provision  for  the  life,  naturally  called  forth  under  its  own 
most  successful  action.     A  people  may  find  their  numbers 


100  POLITICAL  ECONOMY. 

doubled  in  twenty  years,  and  a  large  addition  to  the  aggre- 
gate of  wealth ;  but,  if  they  also  find  that  the  standard  of 
social  life  has  declined,  or  not  made  the  progress  due  to 
that  period;  that  their  resources  are  pressed  upon  by  a 
swarming  population,  and  every  advantage  devoured  be- 
fore it  has  fairly  ripened,  —  the  benefit  conferred  by  such 
an  increase  is  very  questionable.  That  steady  growth  of 
social  advantages  and  enjoyments,  which  is  the  true  aim 
of  production,  has  oftentimes  no  more  formidable  obstacle 
than  a  hasty  multiplication  of  numbers,  gathering  and 
wasting,  with  careless  sickle,  the  unripe  grain  of  a  future 
harvest.  The  good  of  the  race,  of  nations  and  of  indi- 
viduals is  found,  not  in  the  absolute  increase,  either  of 
men  or  of  products,  but  in  an  increase  of  the  last  in  refer- 
ence to  the  first,  thereby  giving  to  man  a  larger  possession 
in  himself  and  out  of  himself,  a  broader  foothold,  and  the 
wielding  of  more  efficient  instrumentalities. 

If  these  considerations  are  just,  we  may  admit  that 
population  attends  upon  food,  and  still  question  the  pro- 
priety of  forcing  a  home  market  for  food,  and  thus  purchas- 
ing a  population  out  of  resources  thereby  made  only  the 
more  scant  and  inadequate.  This  is  to  throw  away  exist- 
ing advantages,  only  to  secure  greater  numbers  to  devour 
the  remaining  advantages.  Is  it  not  evident,  that  a  popu- 
lation so  secured,  if  it  does  not  actually  depress  a  com- 
munity, must  mar  its  progress,  and  limit  the  prosperity 
otherwise  open  to  it  ?  In  proving  an  increase  of  popula- 
tion nothing  is  gained,  unless  there  is  also  proved  a  strictly 
corresponding  increase  of  powers,  a  broadening  of  the 
social  life,   without   damage   to   the    previously   existing 


EFFECT    OF   LAW    Otf   LABOR   AND    CAPITAL.  101 

commercial  profits.  If  this  proof  is  to  be  given,  those 
who  give  it  are  thrown  back  upon  the  old  problem  of 
showing  how  wealth  is  to  be  gained  by  restricting  an  ad- 
vantageous trade.  The  population  granted,  —  how  is  that 
population  to  be  so  liberally  provided  for  as  that  which 
we  already  possess,  when  the  very  first  step  in  the  process 
involves  a  loss  of  advantage  throughout  the  whole  com- 
munity, in  the  increased  price  of  some  of  the  most  needful 
products  ?  If  we  are  willing  to  pay  for  population,  there 
will  undoubtedly  be  no  difficulty  in  populating.  A  bounty 
wjrnld  be  as  efficacious  as  a  tariff,  and  much  more  direct 
and  explicit.  We  should  at  least  know  what  we  get  for 
what  we  give. 

It  is  sufficiently  evident,  that  no  new  point  is  involved 
in  this  argument  of  population,  and  that  if  any  other  than 
a  dependent  population,  —  for  such  are  they  who  live  by 
protection,  —  is  to  be  given  us,  it  still  remains  to  be  shown 
how,  by  the  means  proposed,  profits  and  products  are  to 
bear  a  larger  ratio  to  producers.  It  is  certainly  well  that 
agriculture  should  find  its  supplement  and  completion  in 
cities  and  villages,  —  the  homes  of  manufacturers  and  arti- 
sans,—  and  accordingly,  it  offers,  by  the  cheapness  of 
subsistence,  the  abundance  of  the  raw  material,  and  a 
ready  market  for  the  new  wares,  great  inducements, — 
inducements  which  practically  will  never  leave  any  agri- 
cultural country,  unless  there  be  conflicting  social  institu- 
tions, like  that  of  slavery,  for  any  length  of  time,  destitute 
of  such  aid.  The  forces  which  nature  has  established 
seem,  and  are,  ample  to  secure,  for  each  of  the  different 
forms  of  industry,  aid  in  the  correlative  and  allied  forms ; 

9* 


102  POLITICAL   ECONOMY. 

and  in  no  department  are  these  forces  more  numerous  and 
obvious  than  in  that  of  agriculture.  A  country  given  to 
the  culture  of  the  soil  is  necessarily  a  well  watered  coun- 
try, and  can  hardly  fail,  therefore,  to  offer,  in  its  water 
privileges,  cheap  and  efficient  sources  of  mechanical 
power.  It  is  also  a  well  wooded  country,  or  capable  of 
becoming  a  well  wooded  country;  and  here  is  a  large 
reduction  in  the  original  cost  of  buildings,  and  a  perpetual 
reduction  in  the  price  of  fuel.  The  food  and  raw  produce 
which  an  agricultural  nation  has  been  in  the  habit  of 
exporting  is  necessarily  of  a  bulky  character,  not  w^ll 
bearing  the  expense  of  transportation ;  and  hence,  there- 
fore, able  to  be  afforded  at  home  at  prices  very  much 
reduced.  Of  this  advantage,  the  manufacturer  on  the 
ground  avails  himself  to  the  full  extent,  even  if  his  own 
products  are  to  be  sent  abroad,  —  a  thing  not  to  be  antici- 
pated in  reference  to  the  great  mass  of  them,  —  since  the 
increased  value  and  diminished  volume  of  manufactured 
goods  enables  them  to  be  readily  transferred. 

Not  only  will  all  the  grains  be  cheaper  in  such  a  country 
than  in  another,  but  in  a  much  higher  degree  will  the 
meats  and  perishable  articles  of  food  be  cheapened. 
These  can,  only  within  narrow  limits,  be  transported ;  and 
hence,  in  a  farming  country,  must  exist  in  great  supera- 
bundance. When  the  land  is  enclosed  for  culture,  if  its 
fertility  is  to  be  kept  good,  there  must  be  a  corresponding 
amount  of  animal  life,  that  the  necessary  manures  may  be 
furnished,  and  the  needful  labor  be  performed.  This 
animal  life,  existing  as  an  essential  appendage  of  all  profit- 
able and  protracted  tillage,  and  finding  a  large  port  of  its 


EFFECT   OF   LAW   ON   LABOR   AND   CAPITAL.  103 

recompense  in  the  additional  value  which  it  has  already- 
imparted  to  the  fruits  of  the  field,  will,  when  it  comes 
as  food  to  a  restricted  market,  be  exceedingly  low.  Any 
product,  which  comes  into  existence  primarily  for  the  sake 
of  another  product,  and  in  which,  therefore,  a  portion  of 
its  value  is  already  represented,  will  of  necessity  be 
cheap.  In  such  a  position  is  animal  food,  as  long  as  no 
adequate  and  open  market  makes  a  demand  which  causes 
it  to  be  produced  for  its  own  sake.  In  a  country  where 
sheep  are  chiefly  kept  for  the  fleece,  the  flesh  will  bring 
but  little ;  where  horned  cattle  are  kept  for  labor,  for 
butter,  for  milk,  for  hides,  for  sustaining  tillage,  there  will 
be  but  a  small  residuum  of  value  due  to  the  meat  which 
they  furnish. 

All  these  forces  will  be  in  their  highest  intensity  prior 
to  the  existence  of  any  large  manufacturing  interest,  and, 
just  at  the  moment  when  such  an  interest  is  seeking  to 
establish  itself,  will  render  their  fullest  aid.  It  is  not  till 
the  manufacture  is  firmly  rooted,  and  the  home  market 
ample,  that  these  advantages  will  in  part  be  withdrawn. 
Are  not  then  the  natural  forces,  by  which  industry  pro- 
vides for  its  own  wants,  sufficient  ?  If  any  case  be  found 
in  which  they  are  not  sufficient,  in  which  the  balance 
fully  apprehended  and  fairly  struck  is  against  us,  will  we 
force  ourselves  into  the  stream,  and,  by  naked  strength 
and  obdurate  will,  turn  -back  and  vanquish  those  very 
laws  of  production  on  which  our  profits  solely  depend? 
If  the  natural  agencies  at  work  unite  in  the  verdict,  un- 
profitable, can  we  hope  to  reverse  that  verdict  ?  If  it  is 
wisdom  to  knqw  laws,  it  is  also  wisdom  to  obey  them. 


104  POLITICAL  ECONOMY. 

Nor  is  it  sufficient  to  say  that  we  anticipate  and  inau- 
gurate natural  tendencies.  Anticipation  is  disobedience, 
and,  for  the  full  length  of  time  in  which  we  are  really  in 
advance  of  the  natural  forces  at  work,  we  pay  the  full 
price  of  our  mistake,  and,  by  wasting  our  resources,  retard, 
rather  than  advance,  the  time  of  true  success.  Nature 
lifts  with  a  lever,  and  we  by  hand ;  if  we  tug  prematurely, 
we  shall  only  exhaust  our  strength.  If  our  present  profits 
are  too  high  for  a  given  manufacture,  let  us  enjoy  them  to 
their  full  extent,  till  their  own  action,  and  not  ours,  has 
reduced  them  to  the  needful  level.  The  lower  wages  and 
profits  of  a  neighboring  country  are  not  transferred  to  us 
when  we  stand  on  our  own  basis  of  local  advantage,  com- 
manding by  commodities  produced  with  higher  profits  and 
better  wages  their  commodities;  but  when,  neglecting 
these  advantages,  we  force  ourselves  into  competition 
with  them  in  the  same  articles,  their  low  wages  must,  in 
part  at  least,  be  inevitably  transferred. 

The  Political  Economist  relies  not  on  schemes  and 
devices,  and  craft  and  retaliation,  and  local  gains  secured 
at  the  general  expense ;  but  upon  inherent,  inevitable 
tendencies,  —  upon  natural  laws.  It  would  be  but  a 
destructive  confession  to  allow  that  these  laws,  while 
good  between  individuals,  break  down  between  nations ; 
that  just  as  we  are  passing  up  to  generalities,  our  system 
vanishes,  and  leaves  us  in  thin  air.  Accordingly,  such  a 
confession  has  rarely,  and  never  wisely,  been  made. 
Economists  have  felt  themselves  standing  on  the  indis- 
putable and  immutable  relations  of  things  in  advocating 
the  freedom  of  natural   forces,  and  brushing  aside   the 


EFFECT   OF  LAW  ON  LABOR  AND   CAPITAL.  105 

selfish  schemes  and  temporizing  policy,  with  which  their 
place  has  been  supplied;  they  have  felt,  that  the  adjustment 
and  interaction  of  different  tendencies,  that  the  determi- 
nation of  the  point  at  which  the  concentration  of  industry 
in  a  single  nation  should  be  suspended  by  a  division  of 
labor  between  nations,  might  be  safely  left  to  the  regu- 
lation of  the  same  power  which  established  the  separate 
forces  and  principles.  Laws  of  production,  which  faithfully 
mark  out  the  path  of  all  minor  procedure,  and  carefully 
adjust  the  conflict  of  secondary  interests,  do  not  leave  the 
higher  and  broader  questions  and  collisions  of  the  world's 
commerce  unguided  and  unguarded.  This  science  vindi- 
cates itself,  by  showing  both  the  perfection  of  the  parts 
and  the  perfection  of  the  whole ;  that  in  its  keeping  is  the 
profit  of  the  individual,  of  the  nation,  and  the  world ;  and 
that  the  law  of  the  members,  in  its  broadest  and  grandest 
application,  still  holds  good. 

$  7.  The  system  of  protection  condemns  itself,  in  that  it 
so  frequently  aims  at,  and  so  universally  inflicts,  an  injury 
on  a  foreign  nation.  This  is  sufficient  to  characterize  it 
as  a  selfish  scheme,  and  remove  it  from  the  pale  of  broad 
principles.  We  have  now  to  speak  of  it  as  that  weapon 
of  warfare  and  retaliation  which  it  truly  is.  When  an 
impost  is  laid  for  the  protection  of  home  production,  it  may 
be  so  high  as  altogether  to  exclude  the  foreign  article,  and 
completely  leave  the  market  to  the  home  product.  This, 
however,  will  rarely  happen,  since  so  high  an  impost  is 
more  than  is  demanded  for  the  purposes  of  protection.  It 
will   ordinarily  aim   to  raise   the   price  of  the   imported 


106  POLITICAL   ECONOMY. 

commodity  to  that  point  at  which  it  can  be  manufactured 
at  home,  placing  competition  from  abroad  to  a  disadvan- 
tage, but  not  entirely  excluding  it.  Under  these  circum- 
stances, the  increase  in  price,  which  the  community,  so 
watched  over,  will  pay,  is  divided  between  the  manufac- 
turers engaged  in  rearing  the  nursling,  and  the  government. 
The  ratio  of  division  will  be  that  of  the  domestic  to  the 
foreign  products  still  clinging  to  the  market.  The  first  of 
these  sums  realizes  to  the  people  all,  and  no  more  than 
the  particular  policy  of  protection  is  worth ;  the  second, 
appearing  as  taxes,  is  entirely  saved.  These  exhaust  the 
home,  but  not  the  entire,  effect.  The  nation  whose  mar- 
ket has  thus  been  retrenched  is  also  a  loser.  A  portion  of 
her  commodities  must  go  elsewhere,  to  crowd  old,  or 
search  out  new,  avenues  of  trade ;  and,  unless  favored  by 
some  unexpected  opening,  equal  to  the  one  just  closed, 
there  must  be  a  loss  in  profits  on  this  portion  of  her  mer- 
chandise. But,  in  order  to  retain  so  far  as  possible  the 
old  and  wonted  market,  she  will  reduce  somewhat  the 
price  of  her  goods,  aiming  thereby  to  compensate  the  rise 
occasioned  by  the  tariff,  and  to  retain  a  portion  of  the  cus- 
tomers that  would  otherwise  be  driven  off  Here,  again, 
is  a  loss  of  profits.  These  results  it  is,  which  have  always 
given  to  such  acts  an  injurious  and  hostile  aspect,  and 
marked  the  policy  which  dictated  them  as  eager  and 
crafty,  not  broad  and  catholic. 

The  advantages  of  a  trade  are  not  necessarily  divided 
equally  between  the  two  parties.  If  a  strong  demand 
exists  for  the  articles  furnished  by  the  one  nation,  and 
only  a  moderate  demand  for  those  furnished  by  the  other. 


EFFECT   OF   LAW   ON   LABOR   AND    CAPITAL.  107 

the  bulk  of  the  profits  will  be  secured  by  her  whose  mer- 
chandise is  most  sought.  This  is  readily  seen.  Suppose 
the  nation  whose  commodities  are  in  but  moderate  demand 
to  offer  her  products  in  the  ports  of  her  neighbor.  They 
do  not  meet  with  a  rapid  sale,  and,  to  hasten  the  traffic, 
the  price  is  lowered.  But  the  articles  which  are  sought 
in  return  are  in  high  demand,  and  hence,  bearing  a  full 
price.  Every  effort  to  secure  an  increased  supply  of  these, 
still  further  enhances  their  market  value;  and  the  more, 
since  nothing  is  offered  in  return  but  commodities  of  which 
the  supply  is  already  ample.  Thus  the  result  is  a  reduced 
price  on  the  one  side,  and  an  enhanced  price  on  the  other, 
leaving  the  profits  of  the  two  nations  to  bear  to  each 
other  the  same  ratio  as  the  demand  for  their  respective 
commodities.  As  fast  as  the  product  least  in  demand 
falls,  its  market  will  be  enlarged,  and  the  tendency  to 
further  declension  in  price  checked.  As  fast  as  the 
article  in  largest  demand  rises  in  value,  its  market,  or  the 
number  of  persons  who  wish  it  at  the  advanced  price,  will 
be  diminished,  and  hence  the  tendency  to  further  increase 
restrained.  At  the  opening  of  trade,  the  two  commodities 
were  not  in  equilibrium,  the  call  for  the  one  not  being 
sufficient  to  enable  it  to  meet  and  balance  the  indebted- 
ness incurred  by  the  larger  call  for  the  other.  But  as  the 
market  of  the  first  is  enlarged  by  its  falling,  and  of  the 
second,  restricted  by  its  rising  price,  there  comes  to  be  an 
equality  in  demand,  and  the  sales  on  the  one  side  cancel 
those  on  the  other.  The  price  at  which  this  equilibrium 
occurs  marks,  for  the  time  being,  the  relation  and  adjust- 
ment of  trade  between  the  two  nations,  and  is  termed  the 


108  POLITICAL   ECONOMY. 

Equation  of  International  Demand.  We  have  only  spoken 
of  a  single  traffic  in  single  products ;  their  multiplicity  does 
not  affect  the  statement. 

The  proposition  which  expresses  the  above  principle  is 
this: 

The  profits  accruing  from  a  trade  between  nations  will  be  so  divided 
between  the  parties,  as,  by  resulting  prices,  to  equalize  the  demand 
for  their  respective  products,  and  cancel  the  debts  mutually  incurred: 
the  greater  the  demand  for  a  nation*  s  products,  the  larger  the.  share 
of  profits  thereby  secured ;  the  less  the  demand,  the  less  the  share. 

A  single  example  will  make  this  proposition  plain.  Sup- 
pose that  the  results  of  ten  days'  labor,  expended  in  the 
United  States  in  producing  breadstuffs,  will  purchase  in 
England  cotton  goods  to  an  amount  requiring  twelve  days 
of  our  own  labor  to  manufacture ;  suppose,  also,  that  the 
products  of  ten  days'  labor,  expended  in  England  in  the 
manufactory  of  cotton  goods,  will  purchase  in  the  United 
States  the  produce  of  twelve,  days  of  its  agricultural 
labor :  it  would  then  seem  that  exchange  might  take  place 
with  a  mutual  profit  of  twenty  per  cent.,  of  two  days  in 
every  ten.  This  would  be  so,  if  the  sales  of  the  one 
commodity  in  the  one  country  readily  equalled  those  of 
the  other  commodity  in  the  other  country ;  that  is,  if  the 
demand  for  the  two  were  equal.  But  if  the  cotton  goods 
of  England  were  in  less  demand  than  the  breadstuffs  of 
the  United  States,  that  demand  must  be  increased  by  the 
fall  of  price,  if  this  class  of  goods  is  still  to  command 
American  produce.  Suppose  that  the  market  could  be 
sufficiently  enlarged,  and  an  equilibrium  reached  by  a 
decline  in  British  merchandise  of  ten  per  cent.     In  that 


EFFECT   OF   LAW   ON   LABOR   AND    CAPITAL.  109 

case,  there  would  remain  on  the  one  side,  as  profits  of  the 
trade,  the  gain  of  four-fifths  of  a  day's  labor  iti  every  ten, 
and,  on  the  other  side,  three  and  one-third  days.  With 
every  variation  of  demand,  there  would  be  a  readjustment 
of  profits. 

"With  these  principles  in  view,  the  effect  of  a  tariff  is 
obvious.  Foreign  commodities  are  raised  in  value ;  the 
demand  for  them  is  thereby  straitened,  and  the  remnant 
of  trade  is  then  carried  on  with  a  larger  share  of  profits, 
on  the  part  of  the  nation  imposing  the  duty.  Hence  it 
is,  that  high  imposts  in  one  country  naturally  beget  corre- 
sponding imposts  in  those  countries  trading  with  it,  that 
the  Equation  of  International  Demand,  which  has  been 
forced  from  its  natural  point,  leaving  the  bull?:  of  profits  on 
one  side,  may  be  restored  again.  The  point  at  which  the 
price  settles  in  traffic  is  like  the  fulcrum  of  a  scale  beam ; 
the  rough  justice  of  natural  forces  place  it  at,  or  near,  the 
middle ;  private  avarice  and  fraud  struggle  to  slip  it  toward 
the  pan  containing  their  portion  of  the  spoils. 

If  a  heavy  duty  is  laid  by  us  on  the  teas  and  silks  of 
China,  her  market  is  thereby  restricted ;  her  prices,  in  the 
effort  to  regain  it,  immediately  fall,  and  of  this  reduction 
we  avail  ourselves.  For  these  injuries  she  has  no  redress, 
save  in  a  corresponding  system,  with  corresponding  profits 
accruing  to  herself;  after  which  the  trade  proceeds  as 
before  the  respective  imposts,  save  only  that  it  is  on  a 
platform  of  higher  prices,  restricted  sales,  and  bitter  emu- 
lation. 

From  the  profits  now  shown  to  accrue  in  the  interna- 
tional   trade,    protectionists    have   found   a  very   limited 

10 


110  POLITICAL  ECONOMY. 

consolation.  We  need  only  remark,  that  the  more  com- 
plete their  system,  the  more  certainly  are  these  profits  lost; 
their  realization  requires  protection  at  home  and  free  trade 
everywhere  else;  in  other  words,  that  we  should  know 
enough  to  plunder  mankind,  and  that  they  should  not 
know  enough  to  resist  us.  Whatever  may  be  said  of  pro- 
duction, such  a  state  of  things  would  undoubtedly  be 
favorable  to  pelf.  Again,  the  price  of  foreign  commodities, 
after  the  full  reduction  has  taken  place,  is  still,  higher  than 
before  the  impost.  We  purchase,  by  our  own  loss,  the 
opportunity  of  inflicting  a  loss  upon  our  neighbor. 

These  obvious  and  designed  effects  of  a  protective  tariff 
justify  us  in  calling  it  a  piece  of  selfish  craft,  and  not  a 
broad  and  liberal  principle. 

$  8.  The  only  topic  remaining  to  us,  in  marking  the 
connection  of  government  with  labor  and  capital,  is  taxa- 
tion. The  services  of  rulers,  though,  if  well  performed, 
as  valuable  as  any  rendered  to  production,  are  not  self- 
rewarding.  The  methods  by  which  the  expenses  of  gov- 
ernment are  met  are  two,  direct  and  indirect  taxation,  — 
an  assessment  made  on  persons  and  property,  and  an 
assessment  made  on  products. 

A  direct  tax  assumes  two  forms,  a  poll  tax  and  a 
property  tax.  The  expenses  of  government  chiefly  fall 
upon  property,  both  because  this  implies  the  ability  to 
meet  them,  and,  also,  because  the  largest  share  of  legis- 
lative and  judicial  action  is  directed  to  the  protection  of 
property,  and  the  adjustment  of  the  interests  and  the  con- 
troversies   connected    therewith.       But    as    each   citizen. 


EFFECT   OF   LAW   ON   LABOR   AND    CAPITAL.  Ill 

however  limited  may  be  his  possessions,  is  yet  indebted  to 
government  for  the  defence  of  personal  rights,  and  him- 
self has  an  interest  in,  and  duty  to,  that  government, — 
these  relations  are  recognized  in  a  poll  tax.  Just  govern- 
ment is  so  needful  for  all,  is  so  the  common  interest  of 
all,  so  open  in  its  remedies  and  duties  to  all,  that  it  is 
fitting  that  all  should  unite  for  its  support,  on  a  basis  of 
taxation  equal  and  universal. 

The  general  principles  of  just  taxation,  as  given  by 
Adam  Smith,  are  the  following : 

"  1.  The  subjects  of  every  state  ought  to  contribute  to 
the  support  of  the  government,  as  nearly  as  possible  in 
proportion  to  their  respective  abilities ;  that  is,  in  proportion 
to  the  revenue  which  they  respectively  enjoy  under  the 
protection  of  the  state.  In  the  observation  or  neglect  of 
this  maxim  consists  what  is  called  the  equality  or  ine- 
quality of  taxation. 

"2.  The  tax  which  each  individual  is  bound  to  pay, 
ought  to  be  certain,  and  not  arbitrary.  The  time  of  pay- 
ment, the  manner  of  payment,  the  quantity  to  be  paid, 
ought  all  to  be  clear  and  plain  to  the  contributor  and  to 
every  other  person.  Where  it  is  otherwise,  every  person 
subject  to  the  tax  is  put  more  or  less  in  the  power  of  the 
tax-gatherer,  who  can  either  aggravate  the  tax  upon  any 
obnoxious  contributor,  or  extort,  by  the  terror  of  such 
aggravation,  some  present  or  perquisite  to  himself.  The 
uncertainty  of  taxation  encourages  the  insolence  and 
favors  the  corruption  of  an  order  of  men  who  are  naturally 
unpopular,  even  when  they  are  neither  insolent  nor  cor- 


112  POLITICAL   ECONOMY. 

rupt.  The  certainty  of  what  each  individual  ought  to  pay- 
is,  in  taxation,  a  matter  of  so  great  importance,  that  a  very 
considerable  degree  of  inequality,  it  appears,  I  believe, 
from  the  experience  of  all  nations,  is  not  near  so  great  an 
evil  as  a  very  small  degree  of  uncertainty. 

"  3.  Every  tax  ought  to  be  levied  at  the  time,  or  in  the 
manner,  in  which  it  is  most  likely  to  be  convenient  for  the 
contributor  to  pay  it.  A  tax  upon  the  rent  of  land  or  of 
houses,  payable  at  the  same  time  at  which  such  rents  are 
usually  paid,  is  levied  at  the  time  when  it  is  most  likely  'to 
be  convenient  for  the  contributor  to  pay ;  or  when  he  is 
most  likely  to  have  the  wherewithal  to  pay.  Taxes  upon 
such  consumable  goods  as  are  articles  of  luxury,  are  all 
finally  paid  by  the  consumer,  and  generally  in  a  manner 
that  is  very  convenient  to  him.  He  pays  them  by  little 
and  little,  as  he  has  occasion  to  buy  the  goods.  As  he  is 
at  liberty,  too,  either  to  buy  or  not  to  buy,  as  he  pleases,  it 
must  be  his  own  fault  if  he  ever  suffers  any  considerable 
inconvenience  from  such  taxes. 

"  4.  Every  tax  ought  to  be  so  contrived,  as  both  to  take  out 
and  keep  out  of  the  pockets  of  the  people  as  little  as  pos- 
sible over  and  above  what  it  brings  into  the  public  treasury 
of  the  state.  A  tax  may  either  take  out  or  keep  out  of 
the  pockets  of  the  people  a  great  deal  more  than  it  brings 
into  the  public  treasury,  in  the  four  following  ways  :  First, 
the  levying  of  it  may  require  a  great  number  of  officers, 
whose  salaries  may  eat  up  the  greater  part  of  the  produce 
of  the  tax,  and  whose  perquisites  may  impose  another 
additional  tax  upon  the  people.  Secondly,  by  the  for- 
feitures and  other  penalties  which  Ihese  unfortunate  indi- 


EFFECT   OF   LAW   Otf   LABOR   AND   CAPITAL.  113 

viduals  incur,  who  attempt,  unsuccessfully,  to  evade  the 
tax,  it  may  frequently  ruin  them,  and  thereby  put  an  end 
to  the  benefit  which  the  community  might  have  derived 
from  the  employment  of  their  capitals.  An  injudicious  tax 
offers  a  great  temptation  to  smuggling.  Thirdly,  by  sub- 
jecting the  people  to  the  frequent  visits  and  the  odious 
examination  of  the  tax-gatherers,  it  may  expose  them  to 
much  unnecessary  trouble,  vexation,  and  oppression." 

With  these  principles  in  view,  it  is  easy  to  determine 
the  advantages  and  disadvantages  of  any  system  of  taxa- 
tion ;  but,  as  these  frequently  stand  in  such  even  balance 
with  each  other,  it  often  is  not  easy  to  decide  between 
different  systems. 

Direct  taxation  has  difficulties  and  advantages,  as  fol- 
lows : 

(a)  It  is  unequal.  If  the  tax  be  divided  into  a  poll  and 
property  tax,  the  last,  and,  usually,  the  largest  part,  neces- 
sarily falls  unequally;  since  a  large  portion  of  property, 
existing  in  circulating  capital,  in  loans,  and  stocks,  readily 
escapes  detection  and  that  just  valuation  on  which  such  a 
tax  should  rest.  Real  estate  and  fixed  capital,  from  their 
nature  not  to  be  concealed  or  removed,  are  compelled  to 
bear  the  weight  of  such  a  tax,  and  that,  too,  when  their 
ownership,  under  debt  or  mortgage,  is  rather  nominal  than 
real.  Palpable  wealth  is  open  plunder  to  such  a  tax, 
while  invisible  wealth  lurks  in  comparative  safety.  If  it 
be  wholly  a  property  tax,  resting,  as  it  should  rest,  on  in- 
come and  not  on  possession,  though  in  theory  the  most 
perfect  of  all  taxes,  in  practice,  it  still  falls  far  short  of 

10* 


114  POLITICAL  ECONOMY. 

equality,  —  of  that  division  in  which  every  man's  ability  is 
represented.  Its  practical  failure  rises  from  the  difficulty 
of  determining  the  amount  of  incomes.  They  are  fre- 
quently not  known  to  the  persons  enjoying  them —  seldom 
to  the  community.  The  farmer,  the  merchant,  the  manu- 
facturer, would  often  find  it  impossible  to  determine  their 
precise  income,  drawn,  as  it  daily  is,  in  a  great  variety  of 
ways,  not  only  from  profits,  but  from  a  consumption  of 
their  own  products.  Neither  can  men  be  rightly  exposed 
to  the  strong  temptation  hereby  given  for  false  estimates, 
The  friction  involved  in  this  method  destroys  its  theoretical 
perfection. 

(b)  The  number  of  officials  required  for  the  collection 
of  a  direct,  is  much  greater  than  that  required  for  the  col- 
lection of  an  indirect,  tax.  This  is  true  of  all  enlarged 
taxation.  The  present  revenue  of  the  United  States  might 
be  doubled,  with  but  slight  addition  to  the  corps  of  Custom 
House  officers. 

(c)  Government  officials  are  brought  into  more  imme- 
diate contact  with  the  people,  and,  as  many  look  at  im- 
mediate, rather  than  ultimate  results,  an  apparent  collision 
of  interests  is  thereby  occasioned. 

(d)  A  penurious  spirit  is  liable  to  be  engendered,  if  each 
appropriation  is  followed  by  an  immediate  and  obvious 
increase  of  taxes.  Education  and  national  enterprise 
have  to  contend  at  each  step  with  avarice,  and  the  suc- 
cess of  enlarged  and  generous  legislation  is  made  more 
doubtful. 

The  advantages  of  this  method  are: 

(a)    That  while   it  is  unequal,  —  a  difficulty  it  has   in 


EFFECT   OF   LAW   ON   LABOR   AND    CAPITAL.  115 

common  with  all  taxation,  —  it  yet  falls  upon  property 
and  those  who  hold  it,  and  not  upon  commodities  which 
supply  the  wants  of  all. 

(b)  That  it  places  the  people  in  more  immediate  con- 
nection with  the  government,  quickening  their  interest 
and  supervision. 

The  difficulties  of  indirect  taxation  are  these  : 

(a)  It  is  unequal.  This  defect  may  belong,  and,  in  most 
cases,  does  belong  to  the  indirect  method,  in  a  higher 
degree  than  to  the  direct.  Any  system  of  taxation  on 
commodities  from  which  a  large  revenue  is  to  be  drawn 
must,  of  necessity,  be  extensive,  and  include  many  articles 
of  very  general  consumption.  A  heavy  tax,  which  con- 
fined itself  to  a  few  articles,  and  to  articles  of  limited 
consumption,  would,  by  abridging  or  destroying  the  mar- 
ket, destroy  itself.  If,  then,  the  imposts  are  to  be  extended 
to  products  of  common  use,  though  a  portion  of  the  tax 
may  still  be  confined  to  luxuries,  another  and  larger  portion 
must  be  divided  among  the  members  of  community,  accord- 
ing to  their  consumption  of  articles  of  daily  necessity.  It 
is  evident  that  this  consumption  has  but  little  relation  to 
property. 

(b)  A  tax  on  commodities  imposes  an  uncertain  and 
indefinite  burden.  If  it  be  imposed  on  products,  whose 
market  is  shared  by  home  and  foreign  producers,  it  then 
adds  to  the  price  of  the  commodity,  without  securing  all 
of  that  addition  to  the  treasury  of  the  state.  If  it  be 
placed  on  articles  exclusively  of  foreign  manufacture,  it 
may  provoke  retaliation  and  limit  trade.  If  it  be  placed 
on  raw  cr  partially  manufactured  produce,  it  enhances  the 


116  POLITICAL   ECONOMY. 

cost  of  the  final  commodity,  not  to  its  own  extent  merely, 
but,  having  in  the  interim  been  several  times  advanced  by 
manufacturers  and  traders,  by  the  profits  thus  accumulated. 
Such  a  tax  falls  on  trade  and  production  in  the  midst  of 
their  active  processes,  and  is  especially  liable  to  derange 
them,  while  the  precise  extent  and  cost  of  such  derange- 
ment escape  computation. 

(c)   High  duties  tempt  to  smuggling. 

The  compensatory  considerations  are  these : 

(a)  Such  a  tax  is  of  easy  collection.  The  requisite  offi- 
cers are  few,  and  they  are  not  brought  into  immediate 
contact  with  those  who  ultimately  pay  the  tax,  and  whose 
interests  are  affected. 

(b)  The  tax  is  met  in  connection  with  the  purchase  of 
an  article,  and  hence  comes  without  additional  labor  or 
inconvenience  on  the  part  of  the  person  paying  it. 

To  decide  upon  the  method  of  taxation  best  suited  to 
its  position  and  purposes,  is  a  function  of  government,  and 
it  is  in  the  peculiarity  of  its  own  circumstances  that  the 
solution  of  each  problem  is  found.  The  effect  of  the 
various  modifications  of  direct  and  indirect  taxes,  by  which 
they  are  laid  on  houses,  on  rent,  on  wages,  on  various  pro- 
ducts, will  be  best  understood  in  connection  with  distribu- 
tion. A  combination  of  the  least  exceptionable  direct  and 
indirect  forms  may  produce  greater  apparent  perfection, 
but  a  perfection  oftentimes  lost  in  practice  by  the  greater 
complexity  involved. 

In  the  United  States,  the  division  of  expenses  and  of 
powers,  between  the  general  government  and  those  of  the 
states,  has  resulted  in  the  adoption  of  different  methods  of 


EFFECT   OF  LAW    ON    LABOR    AND    CAPITAL.  117 

taxation,  by  these  two  departments  of  authority.  So  de- 
cided are  the  advantages  connected  with  this  variety  of 
methods,  that  it  will  not  be  readily  changed.  They  are 
doubtless  also,  in  part,  the  complements  of  each  other. 
The  limited  expenses  of  the  general  government  can  be 
better  met  by  imposts,  than  could  the  aggregate  cost  of 
the  governments  of  the  several  states.  In  the  one  case, 
the  sum  is  not  so  large  but  that  much  of  it  can  be  secured 
from '  luxuries ;  in  the  other,  nearly  the  whole  must  needs 
have  fallen  upon  necessities.  The  inequality  of  the  direct 
tax  may  at  present,  in  part,  correct  the  inequality  of  the 
indirect  tax,  —  he  who  owns  largely  and  expends  little, 
paying  the  direct  tax  of  the  state ;  he  who  owns  little  and 
expends  largely,  paying  the  indirect  tax  of  the  general 
government.  A  more  perfect  justice,  in  many  instances 
at  least,  is  secured  by  both,  than  would  be  by  either  alone. 


Library, 


CHAPTER    VII. 

INTERACTION   OF  THE  FORCES   OF  PRODUCTION. 

$  1.  The  three  great  productive  powers  we  have  seen  to 
be  natural  agents,  labor,  and  capital.  It  is  now  necessary 
to  note  the  dependence  of  these  on  each  other ;  and,  first, 
that  of  labor  on  natural  agents. 

The  human  species  are  capable  of  indefinite  multiplica- 
tion. Labor  has  no  limits  within  itself.  A  pair  of  parents 
may  number  their  descendants,  in  a  single  century,  by 
hundreds,  and  these,  in  a  second  century,  people  a  conti- 
nent All  the  eastern  world,  swept  by  the  deluge,  was 
filled  with  nations  in  a  period  not  much  greater.  The 
spring  of  animal  life  uncoils  itself  with  astonishing  velocity. 
In  our  own  times,  under  the  fresh  stimulus  of  a  new  coun- 
try, notwithstanding  war,  notwithstanding  the  ordinary 
ravages  of  disease,  the  hardships  of  border  life,  and  the 
extraordinary  blight  of  slavery,  population  has  shown  itself 
able,  in  the  United  States,  to  double  every  twenty-five 
years,  and  will  shortly  engulf  the  Continent,  —  making 
answer  all  along  the  Pacific  shore  with  its  own  broad 
wave  of  life.  Under  higher  incitements,  a  still  stronger 
force  would  develop  itself.  But  this  rate  of  increase  is 
sufficient  quickly  to  populate  all  that  remains  of  the 
globe.  Such  is  the  intrinsic  power  of  our  second  agent  in 
production. 


INTERACTION   OF   THE   FORCES   OF  PRODUCTION.      119 

The  chief  natural  agent,  —  that  on  which  all  others  are, 
in  a  greater  or  less  degree,  dependent,  and  the  only  one 
we  need  now  consider,  —  is  land.  Of  this,  there  exists  a 
limited  amount,  not  to  be  enlarged ;  and  from  this  re- 
stricted surface,  the  best  of  tillage  can  only  force  a  finite 
return.  But  from  land  comes  food,  the  indispensable  con- 
dition of  all  labor ;  hence  the  ultimate  limits  of  labor  are 
found  in  the  ability  of  the  earth  to  furnish  food.  It  is 
true,  that  the  extreme  capacity  of  the  globe  will  never  be 
reached;  that  there  will  never  be  a  time  in  which  man 
shall  say,  not  another  root  can  find  place  in  her  fertile 
bosom,  not  another  fruit  be  added  to  her  bowing  branches. 
But  it  is  wholly  possible,  that  the  earth  will  be  so  occu- 
pied, as  to  bring  to  a  halt,  on  its  final  shore,  the  column  of 
advancing  population,  and  straiten,  through  all  its  coasts, 
the  multiplication  of  the  species.  It  is  not  easy  to  put 
the  last  hair  on  the  camel's  back,  but  very  easy  to  add  as 
much  as  he  will  long  carry.  Population  may  never  stretch 
to  breaking  the  elastic  limits  of  culture,  and  yet,  but  too 
quickly,  find  itself  uncomfortably  pressed.  It  has  to  do 
with  limited  and  measurable  quantities,  and  is  itself  an 
unlimited  and  unmeasured  force,  able  to  eat  up,  with  in- 
creasing and  incredible  velocity,  all  that  is  offered  to  it, 
ever  suiting  its  appetite  to  the  supply.  Let  the  boundary 
be  placed  where  it  may,  and  such  a  force  will  find  it.  The 
capacity  of  the  globe  is  this  boundary. 

Nor  is  this  check  alone  the  distant  check  of  an  ultimate 
plenum.  The  point  being  given  from  which  population 
sets  out  to  occupy  the  earth,  the  most  available  ground, 
according  to  the  methods  of  culture  then  prevalent,  and 


120  POLITICAL   ECONOMY. 

the  markets  there  afforded,  will  first  be  occupied.  After- 
ward, population,  if  still  migratory,  will  readily  pass  into 
neighboring  countries,  where,  once  established,  produce 
will  find  a  new  market,  land  a  new  value,  and  the  growth 
of  the  older  nation  repeat  itself  on  a  fresh  field.  Thus 
each  nation,  though  born  of  an  emergency  and  pressure  in 
the  parent  nation,  when  once  it  comes  into  possession  of  a 
virgin  soil,  finds  itself  with  an  open  and  easy  career  of 
growth.  But,  in  proportion  as  nations  are  more  attached 
to  home  institutions  and  present  relations,  in  proportion  as 
the  field  of  emigration  is  more  distant,  and  intervening 
obstacles  greater,  men  will  be  dissuaded  from  the  effort 
required  for  removal,  will  strive  to  force  the  home  culture 
to  a  higher  point,  enclosing  less  arable  land,  and  bestowing 
more  labor  on  the  old.  Thus,  according  to  a  law  that  we 
have  already  laid  down,  the  returns  of  agricultural  labor 
begin  to  diminish ;  and,  in  proportion  as  the  channels  of 
emigration  are  lengthened  and  obstructed,  and  each  nation 
is  thrown  back  on  its  own  share  of  the  inheritance,  is  it 
found  that  population,  in  its  geometrical  growth,  tends  to 
outstrip  the  too  slowly  increasing  food  of  the  country,  and 
to  crowd  it  with  human  life  beyond  its  present  resources. 
Nations  have  been,  and  are,  perpetually  liable  to  be 
enclosed  by  their  customs,  by  their  ignorance,  by  natural 
obstacles,  by  the  strength  of  surrounding  nations ;  and, 
when  so  enclosed,  to  find  population  forced  against  the 
barriers  of  food.  It  matters  not  to  them,  that  a  large  part 
of  the  earth's  surface  is  yet  unoccupied;  they  have  no 
means  of  egress.  It  matters  not,  that  their  own  lands 
could  yield  more  than  they  do  yield ;  their  own  knowledge 


INTER ACTION   OF   THE   FORCES    OF   PRODUCTION.       121 

and  habits  of  culture  rule  them,  —  are  a  wall  of  concrete 
facts,  that  effectually  cut  them  off  from  the  Elysium  of 
abstract  possibilities.  China  has  long  been  so  shut  up.  It 
does  not  affect  the  case,  to  inquire  whether  her  territory, 
under  a  given  kind  of  cultivation,  might  not  support  many 
more  than  her  present  numbers.  Under  that  culture  which 
is  hers,  it  has  long  failed  to  render  an  adequate  mainten- 
ance, and  the  slightest  vacillation  of  the  seasons  is  suffi- 
cient to  expose  many  to  starvation.  When  the  famine  is 
in  Ireland,  we  may  have  the  satisfaction  of  feeling  that 
the  inherent  powers  of  that  island  have  never  been  reached, 
but  should  also  know,  that  her  resources,  as  developed  by 
her  present  social  state,  have  been  more  than  reached.  A 
nomad  race,  that  are  not  tithing  the  powers  of  the  earth, 
may,  and  perhaps  the  most  frequently  of  all  nations  do, 
feel  the  application  of  these  principles.  The  extent  of 
country,  which  supports  this  careless  and  scattered  life, 
must  be  very  great ;  and  hence  the  limit  of  population,  in 
this  state  of  civilization,  is  readily  reached ;  and,  in  earlier 
times,  a  dearth  of  one  or  two  years  was  sufficient  to  force 
down,  on  their  cultivated  neighbors,  the  hordes  of  the  north 
and  east. 

Enlightened  nations,  in  the  multiplicity  of  their  re- 
sources, are  able,  by  carrying  their  culture  to  a  higher  and 
still  higher  state,  to  bear  back  the  limits  of  food,  and  also 
to  avail  themselves,  in  a  much  fuller  degree,  of  the  wealth 
of  their  neighbors,  and  of  the  general  wealth  of  the  globe. 

From  this  discussion,  it  is  evident  — 

(a)  That,  as  each  nation  becomes  isolated  and  exhausts 
its  resources,  it  may  feel  the  pressure  of  population  long 

11 


122  POLITICAL  ECONOMY. 

before  the  general  limit  of  the  earth's  capacity  has  been 
reached ; 

(b)  That  this  state  will  be  arrived  at  most  quickly  by 
nations  possessed  of  the  feeblest  civilization  and  methods 
of  culture ; 

(c)  That  this  state  may  be,  and  has  again  and  again 
been,  reached  with  a  very  sparse  population  ; 

(d)  That  the  more  intelligent  the  nation,  the  greater 
will  be  the  variety  of  its  resources,  the  greater  the  elas- 
ticity of  this  limit  of  food,  and  the  less  the  danger  of 
famine ; 

(e)  That  the  universal  tendency  of  population,  however 
often  that  tendency  may  be  suspended  or  overruled,  is  to 
exhaust  the  gifts  immediately  made  it,  and,  by  a  too  rapid 
increase,  to  outstrip  their  growth. 

§  2.  These  results  arise  from  the  relation  of  a  force  of 
constantly  increasing  expansive  power,  to  one  of  strict 
limits  and  rapidly  decreasing  vigor,  as  these  limits  are 
approached.  This  increasing  difficulty  which  attaches  to 
agricultural  labor  is  the  necessary  concomitant  of  growth 
in  population.  If  any  bound  is  to  be  set  to  the  fruits  of 
the  earth,  —  and  such  a  bound  there  must  be,  if  the  earth 
itself  is  to  be  bounded,  —  this  bound  must  be  approached 
gradually,  and  with  constantly  increasing  restrictions ; 
otherwise,  population,  no  longer  slowly  checked  under 
new  and  augmenting  friction,  would,  at  its  highest  velocity, 
be  dashed  at  once  against  an  insuperable  barrier. 

These  conclusions  rest  upon  the  law  of  agricultural 
labor,  but  this  law  does  not  rest  upon  the  single  assertion, 


INTERACTION  OP  THE  FORCES  OP  PRODUCTION.   123 

that  the  best  land  is  in  each  country  first  appropriated.  If 
the  reverse  of  this  were  true,  the  law  would  have  essen- 
tially the  same  force  as  at  present.  It  rests  primarily  on 
the  wholly  incontrovertible  assertion,  that  the  early  returns 
of  land  under  labor  are  greater  in  proportion  to  the  labor 
expended,  than  the  later.  This,  taken  in  connection  with 
the  limited  supply  of  land,  must  completely  establish  the 
law  of  agricultural  labor,  in  those  later  and  more  important 
states  of  society  and  production,  in  which  the  territory  of  a 
country  is  fully  occupied.  Nothing  can  be  more  obvious, 
than  that  the  same  acre  is  not  capable  of  indefinite  and 
corresponding  improvement,  under  additions  of  labor; 
otherwise,  a  square  yard  were  as  good  as  a  square  mile, 
an  island  as  a  continent. 

But  the  other  assertion,  which  extends  this  law  to  the 
earlier  states  of  agriculture,  before  land  is  completely  occu- 
pied, is  true ;  if  not  perfectly  and  accurately  true,  yet  so 
true,  as  to  be  the  adequate  basis  of  a  general  law.  Men 
do,  in  the  main,  choose  and  first  occupy  the  best  lands. 
To  assert  otherwise,  is  to  say  either,  that  when  a  greater 
advantage  is  presented  man  still  prefers  the  less,  or,  that 
the  world  has  been  so  cunningly  constructed,  that  the 
greater  good  is  never  accessible  till  each  lesser  good  has 
first  been  appropriated.  Both  of  these  propositions  are  at 
war  with  experience.  It  avails  little,  to  show  that  some 
good  land  has  been  reserved  in  swamps.  The  world  is 
not  a  swamp,  but  meadows  and  uplands.  Nor  does  it 
avail  more,  to  show  that  early  settlements,  while  the  coun- 
try is  yet  heavily  timbered,  reeking,  and  pestilential,  are 
frequently  on  hills  and  slopes ;  men  but  wait  for  the  wood- 


124  POLITICAL  ECONOMY. 

man's  axe  and  a  healthy  sunlight  to  prepare  their  way  in 
the  valley.  The  ark,  that  held  the  coming  world,  opened 
its  doors  on  the  rocky  sides  of  Ararat,  but  only  that  the 
rill,  from  this  new  fountain  of  life,  might  roll  rapidly  down 
its  slopes,  and  spread  out  in  broad  streams  along  the  val- 
leys of  the  Tigris,  the  Euphrates,  and  the  Nile.  The 
pilgrim  bark  let  down  its  passengers  on  the  sandy  and 
barren  coast  of  Plymouth,  but  only  that  they  might  scatter 
themselves  thence,  like  prolific  seed,  through  all  the  fat 
valleys  and  uplands  of  the  Western  Continent.  The  gen- 
eral tendency,  by  which  men  seek  and  secure  the  best,  is 
indubitable.  It  is  only  an  obstinate  substitution  of  re- 
stricted and  local,  for  broad  and  general,  forces,  —  a  con- 
sideration of  days  and  years,  instead  of  centuries,  that  can 
make  it  seem  otherwise.  If  we  take  a  river  by  small 
divisions,  we  shall  find  that  it  runs  in  any  way  we  choose 
to  have  it;  if  the  eye  sweeps  along  its  whole  stretch,  it 
runs  in  but  one  direction. 

The  safety  of  economic  theories  is,  that  they  deal  with 
masses  and  general  movements,  and  are  not  therefore 
bound  to  consider,  nor  are  at  all  affected  by  that  which  is 
limited,  exceptional,  and  peculiar.  A  theory  soundly  based 
on  general  principles  is  safe  in  a  community,  since  there 
the  laws  of  human  nature  are  necessarily  operative;  in 
the  individual,  it  may  fail  through  some  personal  departure 
from  the  general  type.  All  that  we  need  or  care  to  know 
in  reference  to  any  tendency,  is,  that  it  is  general ;  it  is  no 
concernment  of  ours,  that  restricted  and  local  causes  coun- 
teract and  suspend  it,  —  now  on  this  side,  now  on  that. 
The  Avay  will  be  longer,  but  the  issue  of  the  journey  will 


INTERACTION   OF   THE  FORCES    OF   PRODUCTION.       125 

not  be  different  nor  less  certain,  because  the  river  on 
which  we  float  is  winding.  Population  is  not  less  surely- 
liable  to  feel  the  pressure  of  numbers,  because  a  colony- 
destined  for  the  Hudson  is  landed  at  Plymouth;  because 
a  swamp  is  redeemed  to  profitable  culture ;  or  a  valley- 
made  wholesome  by  clearing  and  drainage.  These  are 
not  more  than  eddies  in  the  stream. 

$  3.  This  tendency  in  population  to  outstrip  food  has 
two  checks,  —  the  positive  and  the  preventive.  War,  and 
the  disease  which  destitution  provokes,  constitute  the  first ; 
the  prudence  and  self-control  which  intelligence  and  virtue 
secure,  constitute  the  second.  The  first  of  these  is  closely 
connected  with,  and  often  but  slightly  anticipates  famine, 
which  is  the  necessary  result  wherever  population  is  found 
in  advance  of  present  resources.  This  check  belongs  to 
the  earlier  periods  of  society,  when  the  methods  of  culture 
are  limited  and  inadequate,  and  when  men  have  not  yet 
been  sufficiently  trained  to  anticipate,  and  adequately 
provide  for  the  future.  From  the  imminent  danger  and 
severe  regimen  of  an  early  state  of  society,  each  step  in 
true  civilization  bears  us.  This  dark  region  of  savage 
destitution,  where,  amid  the  most  powerful  latent  forces 
and  unopened  veins  of  largest  wealth,  men  perish  of  pov- 
erty, each  growing  nation  leaves  daily  further  behind. 

The  preventive  check,  on  the  other  hand,  operates  only 
in  the  midst  of  comparative  comfort,  and  implies  a  sagacity 
able  to  anticipate  the  evil,  and  prevent  its  approach.  A 
community  possessed  of  intelligence  also  possesses  itself 
of   enjoyments,  and  retains  these    enjoyments  at  every 

11* 


126"  POLITICAL   ECONOMY. 

needful  sacrifice.  Marriage  is  optional,  and  is  not  entered 
on  till  its  additional  liabilities  can  be  met.  It  is  not  made 
a  thing  of  animal  instinct  and  passion,  but  of  rational  pre- 
vision and  forethought;  and  no  demand  is  created  till  a 
corresponding  supply  is  at  hand.  Thus  the  sexual  instincts 
are  placed  under  the  same  rules  of  temperance  and  pru- 
dence which  control  the  appetites  and  passions  of  the 
whole  man,  and  life  is  made,  not  a  thing  of  impulses,  but 
of  reasons, — not  a  thing  of  hours,  but  of  years.  This 
check  belongs  to  all  high  states  of  society,  anticipates  and 
overcomes  the  evil  without  serious  inconvenience,  and 
applies  itself,  more  and  more  perfectly,  with  each  step  of 
advance.  Savage  life,  by  its  deficiencies  and  vices,  creates 
a  barrier,  and  hurls  itself  against  it,  long  before  the  re- 
sources of  a  single  country  or  continent  have  been  dis- 
covered, much  less  exhausted.  Enlightened  life,  with 
wise  forecast,  anticipates  and  arranges  its  action,  in  refer- 
ence to  the  real  limit,  before  it  reaches  it. 

The  strength  of  life  placed  in  the  human  race  is  wholly 
analogous  to  the  intensity  of  the  same  force,  found  in  the 
various  tribes  of  the  animal  and  vegetable  kingdom,  by 
which  these  maintain  their  footing  on  the  earth ;  the  pres- 
sure of  war,  which  tends  to  extermination,  inducing  an 
increased  fecundity.  A  natural  force,  that  was  only  able 
to  populate  the  globe  under  favoring  circumstances,  could 
not  resist  the  violence,  or  overcome  the  difficulties  which 
man's  ignorance  and  vice  have  ever  opposed.  A  force, 
able  to  withstand  the  obstacles  of  early  and  savage  life, 
and  still  crowd  its  advancing  numbers  over  every  barrier, 
must  needs  be  in  excess,  when  these  barriers  have  been 


INTERACTION  OF  THE  FORCES  OF  PRODUCTION.   127 

broken  down,  and  an  enlightened  science  has  made  the 
path  of  progress  broad  and  easy.  But  this  procreative 
appetite,  in  the  prevision  and  constraint  which  it  demands, 
and,  in  higher  states  of  culture,  secures,  stands  on  the 
same  platform  with  all  our  appetites  and  passions,  not 
solely  guided  by  self-regulating  instincts,  but  left  largely 
in  the  hand  of  reason.  That  this  spring  of  life  has  not 
been  coiled  too  strongly  and  tightly  for  the  work  it  had  to 
perform,  is  sufficiently  evinced  by  the  fact,  that  the  earth, 
at  this  distant  period,  is  far  from  being  fully  possessed. 

$  4.  Having  seen  the  relation  of  natural  agents  to  labor, 
we  have  now  to  see  the  relation  of  these  two  to  capital. 
Agricultural  products  give  limit  to  the  growth  of  labor; 
the  number  of  laborers  limits  the  amount  of  capital  that 
can  be  employed ;  hence  the  ultimate  measure  of  growth, 
in  all  departments,  is  found  in  the  resources  of  agriculture. 
But  this  assertion  has  reference,  in  population,  to  the 
growth  of  numbers;  in  capital,  to  the  increase  of  the 
aggregate  amount.  There  is  another  kind  of  growth 
more  important  than  this,  —  that  of  a  community  of  given 
numbers,  in  its  economic  enjoyments.  It  is  not  necessary, 
for  a  true  social  state,  that  the  population  of  the  globe 
should  be  indefinitely  increased,  but  of  the  highest  impor- 
tance that  commodities,  in  their  relation  to  laborers,  should 
so  increase ;  that  industry  should  have  more  and  more  to 
bestow  on  her  retinue ;  that  production  should  show  itself 
able,  at  every  point,  to  promise  and  to  confer  additional 
rewards  on  additional  skill.  All  social  progression  is  based 
upon  a  possession  of  the  decencies  and  luxuries  of  life  — 


128  POLITICAL  ECONOMY. 

its  external  manifestations;  and,  through  the  instruments 
of  literature,  science,  and  religion,  which  it  furnishes,  it  is 
the  necessary  precursor  of  all  broad  and  high  attainments. 
It  is  then  a  question,  not  exclusively  of  economic,  but  of 
social  interest,  how  far  production  can  supply  the  needful 
basis  and  instrument  of  all  higher  progress. 

Suppose  the  limits  of  food,  in  a  certain  community, 
under  the  prevalent  method  of  culture,  to  have  been 
reached ;  and  that  the  community  is  intelligent,  and  is  not 
willing  to  fall  below  its  present  comforts.  Population 
ceases  to  increase,  and,  the  number  of  laborers  remaining 
the  same,  an  ultimate  limit,  as  far  as  one  element  is  con- 
cerned, is  assigned  to  capital.  The  result  of  such  a  state 
of  things  is  not,  that  the  growth  of  society  in  utilities  is 
checked  or  straitened,  but  only  that  the  number  who  can 
enjoy  that  growth  is  limited.  Capital  may  increase  till 
labor  is  fully  taken  up  ;  then,  as  fast  as  invention,  through 
labor  saving  machinery,  releases  labor  from  old  employ- 
ments, and  leaves  it  open  for  new  efforts,  capital  may 
again  enlarge  itself,  and  the  aggregate  of  commodities  to 
be  divided  in  the  community  can  go  on  to  increase.  Noth- 
ing which  diligence,  skill,  invention,  and  capital,  can  do, 
are  they  restrained  from  doing.  An  inexhaustible  supply 
of  food  could  not  increase  the  power  of  these  agents  to 
secure  a  higher  state  of  external  good  with  given  num- 
bers, but  only  enable  them  to  multiply  these  numbers. 
Food  increases  commodities  and  labor,  but  not  the  ratio 
of  the  first  to  the  second,  which  ratio  alone  determines 
prosperity.  A  want  of  food  suspends  the  increase  of 
numbers,  but   not   the   progress  of   present   numbers   in 


INTERACTION   OP  THE  FORCES   OF  PRODUCTION.      129 

every  form  of  prosperity.  The  country  being  given,  the 
state  of  agriculture  defines  the  number  of  those  who  can 
there  enjoy  the  highest  civilization ;  the  state  of  the  arts, 
the  precise  point  in  civilization  at  present  reached ;  an  in- 
crease of  food  enlarges  the  platform  of  life,  giving  fresh 
numbers;  an  increase  of  mechanical  skill  lifts  up  that 
platform,  giving  station. 

The  land  furnishes  the  raw  produce  of  the  arts,  thereby 
reducing  its  ability  to  furnish  food,  and  still  further  straiten- 
ing its  powers  to  sustain  life.  It  is,  however,  worthy  of 
remark,  that  the  earlier  and  coarser  manufactures,  which 
are  inaugurated  long  before  agriculture  has  approached  its 
limit,  consume  the  raw  material  much  more  rapidly  than 
those  later  and  finer  manufactures,  which  mark  an  advanced 
state.  In  these  mechanical  labor  is  the  chief  element, 
and  but  a  slightly  increased  demand  is  therefore  made  on 
agriculture. 

§  5.  We  have  seen  capital  limited  by  the  amount  of 
labor  at  its  disposal.  Some  have  supposed  that  it  finds 
a  much  earlier  limit  in  the  abundance  of  its  products 
choking  the  markets  and  destroying  profits.  The  one  doc- 
trine is,  that  labor  may  have  all  that  it  can  employ  of  this 
instrument,  and  that  production  is  only  restricted  by  the 
strength  and  skill  of  the  producers ;  the  other,  that  there 
comes  a  time  when  products  are  in  excess,  and  capital 
must  be  withheld  from  profitable  investment,  in  order  to 
restore  and  sustain  the  price.  If  agricultural  produce  con- 
stituted the  one-half  the  market,  and  manufactured  com- 
modities the  other  half,  and  traffic  took  place  chiefly  or 


130  POLITICAL  ECONOMY. 

exclusively  between  these  two,  then  there  would  be  truth 
in  this  statement.  The  condition  of  agriculture  would 
define  and  determine  that  of  manufactures;  since  the 
amount  of  its  produce  would  indicate  the  purchasing 
power  of  one-half  the  market,  and  hence,  the  quantity  of 
profitable  sales  which  could  take  place  from  the  other  half. 
As  long  as  no  more  food  could  be  brought  for  purchase,  it 
would  be  useless  to  offer  additional  articles  for  sale.  There 
is  no  motive  to  make  two  yards  of  cotton,  when  the  two 
can  find  nothing  more  to  purchase  than  was  before  ob- 
tained by  one. 

The  truth  is,  that  each  kind  of  product  stands  over 
against  all  other  kinds,  and  may  purchase  and  be  pur- 
chased by  them  all.  Food  is  but  one  item  among  many, 
and,  though  controlling  the  increase  of  population,  it  no 
more  controls  the  market  than  any  other.  A  single  kind 
of  product  may  be  so  increased,  in  reference  to  others,  as 
more  than  to  meet  the  relative  demand,  and  thus  the  pro- 
ducer be  compelled  to  force  a  sale,  at  the  expense  of  his 
profits.  But  the  more  broadly  this  increase  takes  place, 
the  more  certainly  is  the  equilibrium  of  relations  pre- 
served, and  a  new  purchasing  power  found  ready  to  meet 
the  new  supply.  Larger  amounts  are  brought  forward, 
larger  amounts  secured  in  return,  and  everywhere,  there 
are  the  possession  and  consumption  of  more  utilities. 
Each  man  is  advantaged,  and  only  in  the  growth  of  com- 
mon advantages  does  he  find  the  market  so  enlarged  as  to 
be  able  fully  to  reap  his  own  advantage.  The  skill  of  one 
multiplying  his  products  is  met  by  the  skill  of  another 
with  a  like  increase,  and  a  larger  transfer  of  utilities,  with 


INTERACTION    OF   THE   FORCES   OF   PRODUCTION.       131 

mutually  increasing  enjoyments,  takes  place.  If  a  single 
kind  of  production  were,  by  capital  and  skill,  to  enlarge 
itself,  —  others  remaining  stationary,  —  it  is  evident,  that 
the  interest  of  the  producer  would  suffer ;  since  he  could 
not,  for  any  length  of  time,  secure,  in  exchange  for  his 
own  a  sufficiently  increased  share  of  the  unaugmented 
remainder  of  products.  Not  so  when  many  kinds  are 
simultaneously  enlarging;  these  mutually  compensate 
each  other. 

It  is  true,  that,  as  far  as  the  article  of  food  is  concerned, 
the  multiplied  commodities  would  have  no  more  purchas- 
ing power  than  the  previous  smaller  quantity;  that,  in 
reference  to  all  other  things,  the  price  of  food  would  seem 
to  have  risen,  and  this,  because  the  labor  now  expended 
to  secure  food  is  as  great  as  hitherto ;  and  that,  to  secure 
other  products,  less  than  hitherto.  But  it  is  also  true,  that 
food  differs  from  most  other  articles  in  the  deflniteness  of 
the  amount  constituting  a  sufficiency,  and  in  its  inability  to 
advance  the  state  of  a  community  by  an  increase  beyond 
that  sufficiency.  If  it  be  so  increased,  it  tends  strongly  to 
multiply  numbers,  and  very  feebly  to  raise  the  existing 
social  standard.  Most  manufactured  articles,  in  excess  at 
home,  command  abroad  utilities  without  enlarged  numbers ; 
food  gives  itself  to  numbers,  and  not  to  advancing  utilities. 
It  is  not  growth,  but  multiplication,  —  involution  on  the  old 
basis,  —  that  the  want  of  food  restrains. 

This  progress,  occasioned  by  increased  skill  and  capital, 
is  secured  under  the  direct  impulse  of  self-interest,  —  the 
gravitating  power  of  the  economic  world.  Each  producer, 
as  he  multiplies  his  own  commodities  with  lessening  cost, 


132  POLITICAL   ECONOMY. 

not  only  finds  that  others  are  doing  the  same,  and  that, 
therefore,  there  is  correspondingly  more  to  be  purchased, 
but,  also,  that  these  perceptible  advances  secure,  for  a  time, 
a  perceptible  increase  of  profits,  a  readjustment  of  things 
in  his  favor.  The  market  is  not  instantly  reduced  by  a 
new  supply ;  and  when  reduced,  not  so  reduced  as  wholly 
to  compensate  the  advantage  of  the  new  addition.  The 
equilibrium  of  prices  has,  for  a  moment,  been  disturbed  in 
his  favor,  and,  though  it  must  ultimately  restore  itself,  he 
will,  in  the  mean  time,  reap  unusual  rewards.  Or,  more 
accurately,  the  old  adjustment  of  prices  is  not  applicable 
to  the  new  state  of  things ;  and,  before  the  natural  forees 
at  work  shall  readjust  these  prices,  time  will  be  given  to 
reap  a  harvest  of  high  profits,  —  the  very  tardiness  of 
nature  working  the  reward  of  skill.  Especially  is  this 
true  of  all  staple  commodities,  whose  inertia  is  too  great 
in  the  broad  market  of  a  whole  country,  to  suffer  sales  to 
be  greatly  affected  by  the  growth  of  ordinary  enterprise, 
and  which  give,  therefore,  a  longer  period  of  unusual 
profits,  to  reward  and  stimulate  private  skill.  Thus  is  the 
double  motive  of  immediate  profits  and  of  an  abiding 
individual  and  general  good,  constantly  applied  to  secure 
progress. 

§  6.  It  is  in  the  connection  of  labor  with  capital,  in  see- 
ing that  all  high  production  is  the  birth  of  their  joint 
powers,  and  that  labor  only  becomes  respectable  and  for- 
midable as  it  is  sustained  and  armed  by  the  strong  mech- 
anism of  skill  and  capital,  that  we  understand  the  true 
effect   on    production   of    the    luxurious    expenditure    of 


INTERACTION  OF  THE  FORCES  OF  PRODUCTION.   133 

wealthy  and  aristocratic  classes.  It  especially  behooves 
industry  to  provide  for  her  own  workmen,  and  to  enlarge 
their  share  of  the  commodities  produced  by  their  dili- 
gence. The  state  of  production  is  dependent  on  the  skill, 
intelligence,  and  social  position  of  its  laborers.  The  higher 
and  the  more  universal  the  enjoyments  which  fall  to  their 
lot,  the  more  free,  efficient,  and  successful,  will  be  their 
industrial  efforts.  A  wise  industry  must  provide  for  its 
own.  The  highest  social  state,  which  is  the  highest  pro- 
ductive state,  scatters  its  rewards  and  inducements  among 
the  bulk  of  men ;  trying  to  raise  here  the  tone  of  senti- 
ment and  of  life,  and  to  bear  up  community  in  its  masses 
to  a  higher  platform.  It  devotes  its  leading  energies  to 
that  kind  of  production  whose  commodities  meet  the  ne- 
cessities and  decencies  of  ordinary  life.  It  multiplies  in 
amount,  in  variety,  in  excellency,  in  beauty,  and  reduces 
in  price  all  such  products,  and  places  within  the  reach  of 
the  diligent  a  life  of  comforts  and  enjoyments. 

This  tendency  toward  the  masses,  their  utilities  and 
welfare,  which  industry  would  fain  establish,  is  checked 
and  counterworked  by  all  violent  and  premature  expendi- 
ture on  the  part  of  particular  classes,  especially  if  these 
are  not  themselves  producers.  Capital,  or  that  which 
might  become  capital,  is  perpetually  withdrawn  from  labor 
to  nourish  this  vanity  of  station,  thereby  restricting  and 
weakening  its  productive  force. 

He  who  builds  a  costly  palace,  for  the  time  being,  em- 
ploys many  men ;  but,  the  work  once  completed,  these 
men  are  dismissed,  to  find  no  more  occupation  from  the 
sums  now  expended  and  finally  locked  up  in  a  product 

12 


134  POLITICAL  ECONOMY. 

that  waits  consumption.  He  who  builds  a  factory  may 
employ  as  many  laborers,  while  the  completion  of  the 
work  is  but  the  signal  for  the  commencement  of  large 
industrial  operations;  and  the  sums  already  expended 
have  become  fixed  capital,  not  waiting  consumption,  but 
to  be  perpetually  replaced  by  the  profits  of  the  business. 
These  buildings  worn  out,  there  is  an  accumulation  of 
capital  more  than  able  to  replace  them,  and  inaugurate  a 
similar  movement.  These  expenditures  become  capital, 
and  go  on  to  lend  themselves,  in  increasing  amounts,  to 
labor.  Capital  expends,  returns,  and  reexpends  itself  on 
labor,  each  revolution  preparing  the  way  for  the  succeed- 
ing. Luxury  bestows  its  purse  once  on  labor,  and  then 
has  no  more  that  it  can  do. 

Nor  is  this  the  only  difference  between  these  kinds  of 
expenditure.  Luxury  encourages  labor,  and  cheapens 
products  in  those  departments  of  production  whose  com- 
modities are  out  of  the  reach  of  the  masses,  and  afford  no 
stimulus  to  the  laborer.  It  aims,  not  to  lift  the  platform  of 
common  advantages,  but  to  raise  particular  points  as  high 
as  possible  above  that  platform.  It  abstracts  labor  from 
the  production  of  the  ordinary  decencies  of  life,  weaken- 
ing industry  and  invention  in  these  directions,  that  they 
may  be  made  the  more  successfully  to  pad  the  couch,  and 
pamper  the  appetite  of  indolence.  Industrial  expenditure, 
on  the  other  hand,  when  not  turned  aside  by  the  extrava- 
gance of  individuals,  throws  all  its  energy  into  the  multi- 
plication of  the  products  of  daily  life,  and  places  these,  in 
higher  perfection  and  numbers,  within  the  reach  of  all. 
The  one  pushes  forward  a  limited  portion  of  the  race  at 


INTERACTION    OF   THE    FORCES    OF   PRODUCTION.     lo5 

the  expense  of  the  remainder,  taking  from  the  common 
resources  that  which,  in  the  selfish  hurry  of  vanity,  it 
bestows  on  a  few.  The  other  advances  the  masses  in 
even  line,  making  greater  expenditure  and  fuller  consump- 
tion possible  for  all.  The  premature  haste  of  luxury,  and 
the  wise  delay  of  a  more  generous  economy,  have  equally 
in  view  the  enjoyments  of  consumption ;  but,  in  the  one 
case,  it  is  the  consumption  of  the  few,  in  the  other,  of  the- 
many.  It  is  because  the  luxuries  of  one  class  stand  con- 
trasted with  the  wants  of  another,  that  they  become  per- 
nicious. Let  skill  and  capital  make  the  luxuries  of 
to-day  the  decencies  of  to-morrow,  and  if  they  so  make 
them  for  all,  it  is  the  complete  triumph  of  their  power. 

But  it  may  be  thought  that  no  motive  is  provided  for 
the  acquisition  of  capital,  if  that  capital  may  not  be  with- 
drawn and  expended  at  will ;  that  the  sole  reason  why 
many  engage  in  production  is,  that  they  may  secure  that 
-which  can  afterward  be  expended  in  the  parade  of  luxury. 
This  is  true :  those  who  acquire  products  must  be  left  to 
control  their  consumption.  Political  Economy  does  not 
provide  the  motives  from  which  men  seek  wealth,  but 
only  points  out  the  methods  and  laws  of  its  acquisition. 
It  is  competent  to  determine  what  expenditures  best  pro- 
mote, and  what  retard  its  own  highest  social  state ;  but  it 
cannot  counteract  the  vanity  and  selfishness  which  are  the 
occasion  of  the  one,  nor  supply  the  intelligence  and  en- 
larged philanthropy  which  feed  the  other.  While  the 
laws  of  production  never  oppose,  but  always  sustain  those 
of  morals,  they  by  no  means  supply  their  place.  The 
broadest  -and  best  production  cannot  exist,  till  the  higher 


136  POLITICAL   ECONOMY. 

and  more  generous  impulses  of  the  human  hear?  have 
been  drawn  forth  by  intellectual  and  religious  culture. 
Production  is  so  hardy  in  its  laws,  so  simple  and  primary 
in  the  impulses  to  which  it  appeals,  that  it  can  precede 
any  extensive  social  and  moral  culture,  and,  by  the  ripen- 
ing of  its  own  grosser  interests,  prepare  the  way  for  them. 
It  can  live  in  the  atmosphere  of  selfishness  and  vanity,  — 
may  even  have  a  rank  growth  there,  —  but  it  cannot  unfold 
itself  in  the  broadest  enjoyments,  in  the  happiness  and 
comforts  of  the  masses,  till  a  truer,  a  more  humane,  and  a 
more  religious  spirit  has  sprung  up.  The  vapors  of  a  still 
dank  and  reeking  world  may  nourish  the  rank  vegetation 
of  the  carboniferous  period,  but  it  is  not  till  the  pure  and 
azure  sky  of  the  tranquil  heavens  is  pitched  above  it,  that 
the  earth  is  everywhere  gemmed  with  the  rich  variety  of 
its  present  flora. 

It  is  high  proof  of  the  wisdom  hidden  in  the  laws  of 
production,  that  it  can  work  its  forces  by  the  mean  motives 
supplied  in  the  lowest  social  state;  and  that  it  can  yet 
better  work  those  forces  by  the  highest  impulses  of  the 
most  perfected  state ;  that,  by  the  property  which  their 
very  meanness  has  acquired,  it  can  place  men  under  new 
bonds  to  seek  a  higher  intelligence,  and  possess  a  stricter 
regard  of  law,  and  still  unite  itself  to  the  latest  impulse 
of  a  Christian  benevolence,  affirming  that  in  this  path 
alone  lie  its  fullest  gifts. 

It  is  true,  then,  that  as  long  as  the  vanity  of  wealth  is  a 
ruling  motive  for  its  acquisition,  we  cannot  expect,  nor  do 
the  interests  of  production  suffer  us  to  wish  that  luxury 
should  be  restrained,  or  any  more  generous  impulses  be 


INTERACTION  OP  THE  FORCES  OF  PRODUCTION.   187 

forced  on  industry,  than  those  of  the  social  state  which 
sustain  it.  Our  remedy  is  not  physical,  but  moral ;  not  in 
economic  regulations,  but  in  enlarged  culture.  This  it  is 
which  alone  will  lead  man  to  create  and  use  capital,  not 
as  an  instrument  either  of  luxurious  indulgence  or  debas- 
ing avarice,  but  to  advance,  in  common  with  their  own 
state  and  intelligence,  the  state  and  intelligence  of  the 
community  to  which  they  belong.  To  these  wise  expendi- 
tures, which  act  by  new  incentives  and  a  healthy  emula- 
tion upon  the  masses,  belong  all  those  personal  expenses 
which  lift  men  up,  not  by  the  amount  lavished,  but  by  the 
fitness,  taste,  aud  utility  of  the  thing  purchased;  that 
strength,  amplitude,  and  elegance  of  public  buildings; 
that  breadth  and  liberality  of  provision  for  public  health, 
pleasure,  and  convenience,  which  mark  patriotic  impulses, 
and  teach  the  individual  to  find  his  enjoyments  in  the 
enjoyments  of  the  many ;  that  complete  and  costly  system 
of  general  education,  which  makes  knowledge  a  foremost 
part  of  man's  inheritance ;  that  liberal  and  conscientious 
Christian  benevolence,  that  dares  enjoy  nothing  which  it 
has  not  tithed  for  the  spiritual  service  of  the  race. 

It  is  true  that  motives  may  exist  for  a  generous  produc- 
tion, throwing  the  whole  strength  of  its  resources  into  the 
common  movement,  and  withdrawing  nothing  for  the 
waste  of  vanity  and  passion.  It  were  a  poor  comment  on 
Political  Economy  and  on  human  nature,  which,  in  one  of 
its  departments  of  action,  it  represents,  to  affirm  that  noth- 
ing but  a  restricted  and  irrational  selfishness  is  an  adequate 
impulse  for  industrial  effort ;  that  no  higher  motive  can  be 
supplied  to  it  or  is  sought  by  it;  and  that  all  the  good,  of 

12* 


138  POLITICAL   ECONOMY. 

which  the  many  in  this  direction  are  capable,  is  found 
growing  out  of  the  pride  and  patronage  of  the  few.  It 
is  equally  true,  however,  that  Political  Economy  does  not 
itself  impart  these  motives,  and  that  it  can  only  point  out 
the  higher  state  of  production  which  will  come  in  connec- 
tion with  their  existence.  It  is  fitting  that  Political  Econ- 
omy should  strip  the  luxury  and  prodigality  of  wealth  of 
the  pretence  of  calling  forth  labor,  and  sustaining  industry. 
The  laws  of  production  are  indeed  so  happy,  that  some- 
thing can  be  obtained  from  the  very  vices  of  men,  but 
also  so  happy,  that  much  more  can  be  obtained  from  their 
virtues. 

$  7.  The  condition  of  laborers,  and,  in  the  most  impor- 
tant respects,  the  condition  of  production,  are  not  solely 
nor  primarily  determined  by  the  power  of  the  natural 
agents,  and  the  amount  of  the  capital  at  their  disposal. 
Both  of  these  may  exist  in  a  high  degree,  and  still  leave 
much  wretchedness  in  the  lower  classes.  It  is  in  vain 
that  industry  multiplies  her  products,  unless  there  are 
present,  among  all  classes,  that  self-respect  and  prudence 
which  enable  them  to  realize  and  retain  the  advantage. 
If  a  certain  percentage  of  the  population  of  any  country 
have  so  little  intelligence,  so  little  to  gain,  and  so  little  to 
forfeit,  as  to  be  wholly  improvident,  it  is  in  vain  that  pro- 
duction goes  on  to  provide  more  liberal  resources  and 
higher  possibilities.  Population,  which,  in  this  class,  knows 
no  other  check  than  the  positive  check  of  entire  destitu- 
tion, in  obedience  to  a  general  law  of  all  mere  animal 
life,  —  a  law  no  longer  corrected  by  rational  impulses, — 


INTERACTION  OF  THE  FORCES  OF  PRODUCTION.   139 

goes  on,  under  this  pressure  of  imfavoring  circumstances, 
to  put  forth  new  energies  of  life,  and  is  thus  ready  to  eat 
up,  with  insatiate  hunger,  all  that  is  given  it.  Those  who 
are  paupers  in  their  spirit,  will  remain  paupers,  in  spite  of, 
or,  rather,  by  means  of,  the  most  liberal  provision,  each 
new  external  resource  acting  like  a  bounty  on  the  class. 
It  is  only  by  a  thorough  educational  process,  by  restoring 
such  persons  to  a  true  personality  and  manhood,  that  they 
can  be  lifted  above  the  law  of  all  lower  life,  —  held  in 
check  by  counter  physical  forces,  and  resisting  extinction 
by  unfolding  fresh  productive  powers,  —  and  placed  under 
the  higher  law  of  self-guided  and  responsible  action.  If 
man,  by  his  own  fall  and  degradation,  step  out  of  the 
higher  world  of  intelligent  prevision,  into  the  lower  world 
of  blind  physical  forces,  he  will  come  under,  and  be  bound 
down  by  these  lower  laws,  and  nothing  can  release  him 
from  their  pressure,  till  he  is  again  lifted  on  to  that  higher 
platform  where  they  have  no  force.  If  any  class  of  ani- 
mals is  pressed  with  hunger,  far  from  succumbing  to  the 
new  enemy  under  the  designed  reaction  of  a  natural  force, 
they  rush  to  the  breach  in  increasing  numbers;  they 
swarm  every  avenue  to  life  with  the  spawn  of  a  prolific 
birth,  struggling,  by  the  multiplication  of  chances,  to  res- 
cue the  species  from  impending  ruin.  Judging  from  the 
number  of  births  among  the  extreme  poor,  this  law  does 
not  seem  to  have  been  suspended  in  the  human  constitu- 
tion, but  to  stand  ready  to  apply  its  hard  and  rigorous 
rule,  when  prudence  and  reason  can  no  longer  reach  the 
man  gravitating  downward  into  the  abyss  of  his  animal 
nature. 


140  POLITICAL   ECONOMY. 

The  luxurious  vanity  of  the  higher,  and  the  improvident 
squalor  of  the  lower  classes,  are  frequent  and  natural 
counterparts  of  each  other ;  the  splendor  at  the  upper  ex- 
treme shining  too  remotely  to  quicken  the  dark,  despair- 
ing life  at  the  lower ;  and  the  repulsive  garb  and  aimless 
inanity  of  the  lower  interposing  too  broad  a  gulf  to  secure 
either  the  sympathies  or  to  command  the  fears  of  the 
higher.  Nor  is  it  to  be  expected  that  the  last  rank  of 
society  should  have  rescued  itself  from  the  ignorance  of 
vice,  when  the  first  rank  has  not  yet  rescued  itself  from 
the  ignorance  of  vanity.  Intelligence  follows  the  steps  of 
prosperity,  and  works  its  way  downward.  It  matters  not 
so  much,  in  the  early  stages  of  production,  and  hence  of 
culture,  that  capital  is  grasping  and  selfish,  eager  to  with- 
draw itself  for  individual  luxury ;  for,  during  this  period, 
much  of  labor  is  reckless  and  improvident,  using  its 
advantages,  like  the  food  of  lepers,  only  to  nourish  and 
strengthen  a  social  disease.  It  is  not,  till  the  higher  classes 
have  knowledge  and  moral  training  to  communicate,  that 
they  find  within  themselves  a  motive  for  increased  benefi- 
cence, and  are  also  able  so  to  prepare  the  way  for  the 
enjoyments  of  an  increased  production,  as  that  these  shall 
no  longer  feed  a  mean  and  menial  life,  but  lift  it  to  a 
higher  social  state. 

$  8.  From  this  discussion,  we  gather  the  following  con- 
clusions : 

(a)  An  addition  to  external  advantages  will  improve 
the  social  condition,  when  intelligent  laborers  are  pre- 
pared  to   receive,  and,  by   prudence,  retain   them ;    will 


EFFECT   OF   LAW   ON   LABOR   AND    CAPITAL.  141 

not  improve  it  when  population  merely,  is  thereby  quick- 
ened. 

(b)  All  educational  expenditures  necessarily  prepare 
the  way  for  a  higher  social  and  productive  state,  and, 
when  accompanied  with  increased  physical  resources, 
secure  immediate  progress. 

(c)  A  rapid  advance  of  external  prosperity  is  more 
certain  of  occasioning  a  step  in  permanent  progress,  than 
a  slower  advance ;  since  population  is  outstripped  by  the 
one,  and  men,  coining  into  possession  of  a  higher  form  of 
life,  may  learn  to  value,  and  be  led  to  retain  it ;  with  the 
other,  the  growth  of  population  may  keep  pace. 

(d)  A  pauperism  which  is  not  the  result  of  any  sudden 
pressure,  but  is  the  last  rank  of  community  habitually 
lapsing  into  an  indigent  and  dependent  state,  is  only 
nourished  by  a  permanent  provision,  by  anything  which 
merely  gives  it  a  margin  of  food.  The  burden  of  the 
difficulty  is  intellectual  and  moral ;  and  here  must  be  the 
remedy.  When  the  intelligence  and  skill  of  a  com- 
munity, or  any  part  of  a  community,  have  become  so 
feeble  as  to  suffer  their  numbers  to  press  on  their  re- 
sources, lacking  the  coherence  of  rational  motive,  society 
will  constantly  ravel  out  into  pauperism.  It  must,  under 
higher  incentives,  be  woven  again  into  a  firmer  fabric. 
No  external  forces  can  supplace  the  weakness  of  an 
inherent  life.  Such  a  society  demands  the  tonic  of  knowl- 
edge and  religion,  strengthening  from  within  the  social 
system. 

(e)  A  pauperism  which  is  the  result  of  sudden  pres- 
sure   should    be   relieved    at    once,   before   the    mind   is 


142  POLITICAL   ECONOMY. 

habituated  to  a  lower  state,  and   is  willing  to  make  it 
permanent. 

Production  is  itself  a  disciplining  process,  and,  for  its 
perfection,  demands  the  full  and  generous  discipline  of  all 
wisdom,  thereby  evincing  that  it  walks  with,  and  is  no 
beggarly  companion  of,  our  higher  powers. 


Library* 

Si 

BOOK    II. 

DISTRIBUTION 


CHAPTER    I. 

NOMENCLATURE. 

$  1.  Distribution  is  the  department  of  Political  Economy 
pointing  out  the  principles  according  to  which  products  are 
divided  among  the  several  classes  of  producers.  These 
classes  are  three,  —  the  holders  of  natural  agents,  laborers, 
and  capitalists.  No  more  appear  in  production,  and  hence 
no  more  in  distribution.  The  nomenclature  of  distribu- 
tion has  best  been  given  by  Senior :  "  It  appears  to  us 
that,  to  have  a  nomenclature  which  should  fully  and  pre- 
cisely indicate  the  facts  of  the  case,  not  less  than  twelve 
distinct  terms  would  be  necessary.  For  each  class  there 
ought  to  be  a  name  for  the  instrument  employed  or  exer- 
cised, a  name  for  the  class  of  persons  who  employ  or 
exercise  it,  a  name  for  the  act  of  employing  or  exercising 
it,  and  a  name  for  the  share  of  the  produce  by  which  that 
act  is  remunerated." 

These  several  kinds  of  producers,  though  theoretically 
distinct,  are  frequently  not  so  practically.     The  holder  of 


144  POLITICAL   ECONOMY. 

a  natural  agent  may  also  be  a  laborer  and  a  capitalist ;  a 
capitalist  may  himself  employ  his  capital,  and  thus  be  a 
laborer;  a  landlord,  or  the  owner  of  a  mine,  may  furnish 
the  needful  means  for  carrying  on  the  farm  or  working  the 
mine,  and  thus  be  a  capitalist.  Indeed,  though  no  division 
is  better  made  or  more  firmly  established  than  this  between 
the  three  kinds  of  producers,  there  is  often  considerable 
difficulty  in  deciding  to  which  class  a  given  agent  shall  be 
referred.  This  difficulty,  however,  is  not  such  as  at  all  to 
interfere  with  the  practical  value  of  the  distinction,  or  to 
limit  the  generality  of  the  principles  which  determine  the 
division  of  products  between  the  several  classes.  If  the 
same  person  be  laborer,  capitalist,  and  landlord,  he  receives 
thereby  three  parts,  but  parts  not  less  distinct  than  if  they 
had  fallen  to  three  individuals. 

Bog  land  may  be  purchased  at  one  dollar  an  acre;  it 
may  be  redeemed  at  the  expense  of  forty-nine  dollars  per 
acre,  and  make  a  fair  return  at  the  augmented  value  of 
fifty  dollars.  Are  these  returns  to  be  termed  rent  or 
profits?  The  answer  sometimes  given  is  profits,  in  the 
hands  of  the  improver;  passing  from  his  hands,  rent.  It 
seems  better  to  term  them  at  once,  what  all  agree  in  ulti- 
mately terming  them,  rent.  No  further  change  is  wrought 
in  the  sources  of  these  returns  by  their  transfer,  and  if  a 
later  convenience  demands  that  this  income  of  land  should 
be  termed  rent,  why  not  let  that  convenience  rule  from 
the  beginning.  Also,  this  income  attaching  itself  to  land 
is  immediately  removed  from  the  .  laws  of  profits,  and 
comes  under  those  of  rent.  Money  so  expended  is  no 
longer  in  the  form  of  capital,  fixed  or  circulating,  nor  can 


NOMENCLATURE.  145 

it  be  restored  to  that  form.  It  is,  for  better  or  worse,  in- 
separably wedded  with,  and  transmuted  into,  a  natural 
agent.  If  we  are  not  to  term  the  returns  of  a  farm  just 
purchased  from  man,  profits  instead  of  rent,  why  should 
we  term  them  profits,  when  the  purchase  has  been  made 
from  nature.  If  I  obtain  an  acre  of  good  land  from  my 
neighbor  for  fifty  dollars,  the  case  is  considered  plain :  is 
it  less  plain  if  I  obtain  a  second  acre  at  the  same  sum, 
now  paid  in  two  instalments  —  one  to  my  neighbor,  and 
one  to  nature,  as  the  price  of  her  cooperation  ? 

Labor  is  of  great  variety ;  sometimes  almost  wholly 
unassisted  by  the  mind ;  sometimes,  resting  chiefly  in  the 
toil  of  the  intellect ;  and  sometimes  well  nigh  disappear- 
ing in  the  rapid  and  brilliant  execution  of  genius.  The 
large  returns  of  the  last,  some  have  absurdly  chosen  to  call 
rent,  as  if  large  intellectual  resources  were  equivalent  to  a 
natural  agent,  —  an  impersonate  power  bound  to  service, 
and  in  the  leash  of  the  man  of  genius.  It  would  cer- 
tainly be  difficult  to  decide  who  is  possessed  of  this  lion 
of  the  mind,  and  who  is  not ;  who  is  to  be  dignified  as  a 
holder,  and  who  is  to  drop  into  the  now  degraded  rank  of 
laborers.  Strength,  physical  and  intellectual,  makes  labor 
efficient,  but  does  not  alter  its  character. 

$  2.  Profit  and  wages  almost  always  coexist  in  the  same 
commodity,  and  when  the  laborer  and  capitalist  are  also 
the  same,  it  has  been  thought  more  difficult  to  determine 
what  the  joint  product  of  labor  and  abstinence  should  be 
termed.  If  the  capitalist  and  laborer  are  different  persons, 
the  product  is  divided,  and  the   question  has  a  practical 

13 


146  POLITICAL   ECOXOMY. 

solution;  but  if  the  same  person,  this  actual  answer  is 
wanting,  and  there  is  given  an  opportunity  for  doubt.  The 
correct  solution  of  this  problem  can  hardly  be  deemed  diffi- 
cult. The  portion  of  the  value  of  the  product  due  to  the 
exertions  of  the  individual,  and  the  portion  due  to  the 
capital  employed,  are  readily  separable  in  thought,  and, 
though  existing  together,  have  been  secured  under  very 
different  laws,  —  those  which  regulate  the  returns  of  labor, 
and  those  which  regulate  the  returns  of  capital.  A  manu- 
facturer may  be  his  own  overseer,  or  clerk,  or  business 
agent,  and  thus,  in  the  aggregate  of  returns,  may  find  both 
the  profits  of  the  capital  invested,  and  the  wages  of  this 
kind  of  labor.  The  broker  that  manages  his  own  business 
finds,  in  his  reward,  two  veiy  distinct  elements,  —  compen- 
sation for  personal  skill  and  effort,  and  a  return  of  profits 
regulated  by  the  sums  employed  and  the  current  rate  per 
cent. 

Some  have  also  been  disposed  to  call  the  returns  of 
educated  labor  profits,  and  the  trained  powers  from  which 
they  proceed,  personal  capital.  This  arises,  in  part,  from  a 
desire  to  account  for  the  very  diverse  rewards  which  fall 
to  the  different  classes  of  laborers,  by  the  introduction  of 
a  new  element.  But  this  creates  the  same  confusion 
which  arose  from  calling  the  price  of  talent  rent.  Almost 
all  labor  has  in  it  more  or  less  of  skill ;  very  much  labor, 
skill,  which  it  has  cost  the  artisan  time  and  capital  to 
secure ;  hence,  if  we  term  this  personal  training  capital, 
and  its  reward  profits,  we  shall  have  inextricably  woven 
into  almost  all  labor  a  new  element,  wholly  incapable  of 
accurate  estimation.     It  is  also  evident  that  the  additional 


NOMENCLATURE.  147 

returns  which  fall  to  skill  and  knowledge  have  little  or 
nothing  in  common  with  the  laws  of  capital ;  that  they  do 
not  in  any  way  show  themselves  profits,  by  being  con- 
nected with,  or  the  result  of,  the  current  rates  per  cent. 
On  the  other  hand,  they  are  determined,  so  far  as  they 
are  controlled  at  all  by  general  principles,  by  the  laws  of 
labor,  which  we  shall  hereafter  point  out,  and  thus  are 
wages. 

In  our  definition  of  capital,  we  defined  it  as  a  com-  \ 
modity  retained  for  purposes  of  production,  and  thereby  V 
expressly  excluded  personal  skill.  It  is  equally  excluded 
from  our  definition  of  wealth.  Capital  and  natural  agents, 
and  not  the  laborer,  make  up,  in  the  technical  language  of 
Political  Economy,  the  wealth  of  a  nation.  If  skill  is  to 
be  included  in  wealth,  it  must  be  transferred,  either  to  the 
class  of  natural  agents,  or  to  that  of  capital,  and  through 
these,  introduced  into  the  possession  of  a  nation.  But  if 
we  transfer  it  in  its  higher,  we  must  also  in  its  lower 
degrees ;  and  if  skill  is  to  go  to  capital,  why  should  we 
not,  in  accordance  with  the  suggestion  to  which  reference 
has  been  made,  transfer  personal  qualities,  certainly  not 
less  necessary  and  valuable  than  skill,  to  natural  agents. 
Thus,  the  members  of  the  parted  man,  flying  on  either 
hand,  —  acquired  gifts  to  the  right,  and  original  gifts  to  the 
left,  —  what  nonentity  have  we  remaining  for  the*  laborer  ? 
It  is  doubtful,  even,  whether  the  metaphysician's  airy  idea 
of  personal  identity  could  be  filled  by  it.  The  nation's 
wealth  is  undoubtedly  increased,  for  we  have  tumbled  it 
into  its  own  coffers;  but  what  master  is  left  to  own  this 
sum,  of  which  personal  qualities  and  skill  are  the  largest 


148  POLITICAL   ECONOMY. 

half?  Is  it  not  better  to  let  the  nation  —  the  laborers  — 
remain  in  all  personal  powers  intact,  possess  themselves, 
and  own  the  natural  agents  and  capital  at  their  disposal  ? 
In  the  higher  forms  of  acquisition,  we  may  mark  personal 
wealth,  as  found  in  internal  resources,  but,  in  the  lower 
field  of  gain,  wealth  is  best  confined  to  external  resources 
alone.  Thus,  alone,  can  we  'preserve  a  clear  distinction 
between  the  three  classes  of  productive  agents.  We  have 
no  longer  to  divide  the  returns  of  unaided  personal  exer- 
tion into  rent,  profits,  and  wages,  —  assigning  something  to 
high  endowments,  something  to  the  personal  capital  of 
skill,  and  a  residuum  to  the  barren  qualities  which  are 
supposed  to  constitute  a  laborer. 

It  frequently  happens  that  unusual  returns  are  made  to 
labor,  in  different  places  and  different  departments  of  effort. 
The  discovery  of  gold  may  give  an  unexpected  value  to 
labor  in  a  distant  colony ;  capital  may  secure  an  extraordi- 
nary percentage.  These  extravagant  rewards  are,  in  part, 
accidental,  and  obey  no  law ;  but,  so  far  as  they  are  amen- 
able to  any  law,  it  is  the  law  of  the  particular  agent  with 
which  they  are  connected ;  and  thus,  to  the  extent  to 
which  they  invite  the  attention  of  Political  Economy,  they 
are  subject  to  the  same  nomenclature  as  the  more  reliable 
returns  of  production.  The  sixteen  dollars  of  the  gold- 
digger,  and  the  twenty  per  cent,  of  a  new  country,  are, 
respectively,  as  attached  to  labor  and  capital,  wages  and 
profits.  In  determining  the  class  to  which  any  returns 
belong,  it  is  not  only  needful  to  know  in  connection  with 
what  they  come,  but,  also,  what  was  the  law  of  their  acqui- 
sition,—  that  of  rent,  wages,  or  profits. 


NOMENCLATURE.  149 

§  3.  In  the  first  class  of  productive  instruments,  chief 
above  all  is  laud.  But  this  term  is  too  explicit  and 
limited  to  be  made  to  include  water  privileges,  mines, 
and  the  other  important  agents  of  this  department ;  hence, 
we  must  accept,  as  the  name  of  our  instrument,  the  less 
compact  term  of  natural  agent,  and,  as  the  name  of  the 
person  retaining  it,  the  holder  of  a  natural  agent.  The 
verb  to  hold  designates  the  act  by  which  the  agent  is 
retained  for  production ;  and  rent,  the  share  of  the  pro- 
duce with  which  this  act  is  remunerated.  The  words 
holder  and  to  hold  are  not  technical  terms,  nor  are  any 
of  the  various  other  words  with  which  their  place  is 
supplied. 

In  the  second  class,  we  have,  as  the  name  of  the  in- 
strument employed,  personal  -powers ;  as  the  name  of  the 
person  employing  it,  laborer ;  as  the  name  of  the  act,  to 
labor ;  as  the  name  of  the  reward,  wages.  Three  of  these 
are  recognized  terms ;  the  first  is  not  so,  the  thought  being 
here  left  at  large. 

In  the  third  class,  the  name  of  the  instrument  is  capi- 
tal; of  the  person  retaining  it,  —  in  common  speech  of 
the  person  using  it,  but,  in  Political  Economy,  of  the 
person  retaining  it,  the  actual  use  being  labor,  —  capitalist; 
and  of  the  peculiar  act,  in  addition  to  labor  by  which  it 
is  secured,  abstinence ;  and  of  the  return  made  to  this  act, 
profits. 

In  this  nomenclature,  it  is  seen  how  closely  labor  unites 
itself  to  the  other  instruments,  calling  them  into  use,  and, 
in  the  case  of  capital,  both  creating  and  using  it.  Hence 
it  is,  that,  in  the  terms  capitalist  and  profits,  there  is  a  tacit 

13* 


150  POLITICAL   ECONOMY. 

and  perpetual  reference  of  the  mind  to  exertion,  rather 
than  to  the  negative  act  of  abstinence,  which  is  the  sole 
distinguishing  feature  of  this  third  class.  Indeed,  the 
language  of  Senior  above  given,  "  employ  or  exercise,"  as 
expressing  the  act  belonging  to  the  first  and  third  class 
of  producers,  is  faulty.  The  holder  of  a  natural  agent 
does  not  employ  or  exercise,  but  holds  his  instrument.  It 
is  not  an  exertion  that  is  rewarded  in  rent,  but  it  measures 
an  advantage  which  belongs  to  the  holding  of  a  natural 
agent.  Thus,  also,  in  capital,  abstinence,  which  is  the 
peculiar  act  of  a  capitalist,  and  which  is  rewarded  in 
profits,  is  not  the  employing  or  exercising  of  the  instru- 
ment capital,  but  that  which  transforms  what  was  before 
products  into  capital.  To  employ  and  exercise,  apply 
strictly  to  labor  alone.  This  it  is  which  "  puts  in  act  and 
use"  every  instrument.  Though,  in  general,  of  the  twelve 
terms  now  explained,  those  have  been  first  set  aside  as 
peculiar  and  technical,  which  designate  things  most  dis- 
tinctive and  most  frequently  demanded  in  expression ;  it 
is  not  so  with  the  term  abstinence ;  this,  though  the  hinge 
on  which  every  correct  explanation  of  capital  must  turn, 
has  been  but  recently  supplied. 

§  4.  It  should  be  observed,  before  proceeding  to  point 
out  the  principles  regulating  the  distribution  of  products, 
that  the  forces  which  underlie  and  secure  these  principles 
or  laws  are  oftentimes  modified  or  suspended  by  custom.  \,S 
Society  is  not  left  pliant,  to  be  freely  shaped  by  those 
natural  forces  to  wThich  its  pecuniary  interests  are  intrusted, 
The  passions,  the    avarice,  the    injustice   of   men,    have 


NOMENCLATURE.  151 

established  arbitrary  distinctions;  given  to  certain  classes 
exclusive  rights,  and  hedged  about  their  advantages  with 
customs  and  laws  too  strong  for  the  many.  Ignorance  and 
moral  degradation  have  left  certain  classes  contented  with 
much  less  than,  under  natural  laws  justly  administered, 
would  have  fallen  to  them,  and  have  left  them  open  to  the 
plunder  of  those  with  whom  there  was  the  power  of 
greater  knowledge.  Institutions,  which  are  the  wreck  of 
arbitrary  power  and  ancient  violence ;  customs,  which  are 
rooted  in  the  caprice,  the  pride,  and  the  ignorance  of  men, 
enter  in  to  limit  the  laws  of  competition,  and  give  us 
results  somewhat  different  from  those  due  to  the  undivided 
and  unrestrained  action  of  this  force.  In  consistency  with 
this  it  is,  that  natural  agents  are  not  left  open  to  the  free 
acquisition  of  all,  but  are  straitened  by  laws  of  inheritance, 
by  the  primogeniture  of  England,  and  the  metayer  system 
and  serfdom  of  Europe.  So,  also,  the  caprice  of  fashion, 
and  the  vanity  of  wealth,  come  in  to  give  certain  estab- 
lishments a  prestige,  and  certain  goods  a  price,  altogether 
fanciful.  The  remuneration  of  the  physician  and  that 
of  the  lawyer  are  largely  subject  to  custom,  the  competi- 
tion of  numbers  not  reducing  fees,  but  only  diminishing 
the  chance  of  securing  those  fees.  Ignorance  on  the  part 
of  one  class,  as  that  of  laborers,  may  greatly  limit  their 
resources,  the  number  of  directions  in  which  they  can 
turn  their  efforts,  and  the  length  of  time  in  which  they 
can  remain  without  employment,  and  thus  place  them 
more  completely  in  the  hands  of  capitalists,  than  the  laws 
of  competition,  operating  on  a  similarly  situated,  but  more 
intelligent  community,  would  do.       The  knowledge  and 


152  POLITICAL   ECONOMY. 

skill  of  each  class  must  help  to  determine  how  far  it  shall 
secure  the  advantages  which  are  opened  to  it,  and  how  far 
escape  the  losses  into"  which  the  efforts  of  other  classes 
tend  to  crowd  it.  Many  of  these  exceptions  are  of  minor 
importance ;  others  are  but  the  condition  on  which  compe- 
tition begins  to  act,  —  the  element  amid  which  it  enters 
and  exerts  its  control,  —  and  all  leave  its  great  laws  unaf- 
fected in  their  practical  value. 


CHAPTER    II. 

KENT. 

$  1.  Rent  arises  from  two  causes  —  the  limited  supply 
of  natural  agents,  and  the  difference  in  productive  power 
which  exists  between  them;  these  causes  act  conjointly 
and  separately  to  occasion  rent.  If  natural  agents  were 
of  equal  value,  if  different  lands  were  equally  fertile  and 
equally  well  situated,  but  the  supply  restricted,  there 
would  still  be  a  time  when  these  agents,  all  appropriated, 
would  confer  a  peculiar  advantage  on  their  possessor,  and 
bear  a  rent. 

It  is  better,  for  the  present,  to  confine  our  attention  to 
land,  and,  having  pointed  out  the  principles  that  deter- 
mine rent  and  its  amount  in  this  agent,  it  will  be  easy  to 
see  how  far  these  apply  to  the  other  natural  agents.  On 
the  supposition  of  equal  advantages  in  the  various  soils, 
it  is  the  decreasing  returns,  which,  land  being  all  occupied, 
shortly  begin  to  be  made  to  all  additions  of  effort,  that 
occasion  rent.  Husbandry  of  ordinary  skill  secures  from 
an  acre  a  certain  return  ;  if,  on  the  same  basis  of  skill,  the 
effort  be  doubled,  if  the  soil  be  twice  or  thrice  ploughed, 
harrowed,  or  hoed,  there  will  be  a  larger,  but  not  a  double, 
return.  If  this  exertion  were  again  to  be  doubled,  the  crop 
would  fall  still  further  short  of  a  corresponding  increase. 


154  POLITICAL  ECONOMY. 

Population,  being  placed  in  the  midst  of  these  equal 
gifts  of  nature,  would  begin  to  appropriate  them,  and,  so 
long  as  any  part  was  unoccupied,  no  rent  could  be  secured, 
since  there  would  still  remain,  for  the  taking,  advantages 
the  same  as  those  enjoyed  by  the  present  holders  of  land. 
This  holding,  being  yet  at  the  option  of  all,  could  confer 
no  peculiar  power  on  any.  The  produce  of  such  lands 
could  only  secure  in  the  market  a  price  sufficient  to  com- 
pensate the  labor  expended  in  raising  it.  Food  remaining 
at  this  minimum  price,  population  would  rapidly  increase, 
the  land  would  shortly  be  wholly  taken  up,  and,  under  the 
first  more  moderate  and  profitable  form  of  culture,  be 
making  all  the  returns  of  which  it  was  capable.  To  se- 
cure a  more  rigorous  culture,  and  thereby  a  larger  supply 
of  food  and  raw  material,  an  increase  of  price  would  be 
requisite  to  reward  this  additional  exertion,  as  we  have 
already  seen,  not  sufficiently  rewarded  in  the  new  pro- 
ducts thereby  obtained.  The  demand  for  food  must  be 
intensified,  and  show  this  intensity  in  a  higher  price,  before 
agricultural  labor  could  be  forced  up  the  slope  of  increas- 
ing difficulties.  But  since  there  are  not  two  prices  in  the 
same  market,  not  only  must  the  new  produce  bear  a  value 
proportioned  to  the  exertion  by  which  it  has  been  obtained, 
but  the  old  produce,  which  has  cost  no  more  than  its  usual 
effort,  must  now  have  the  same  value.  As  the  result  of 
this,  there  will  remain  to  the  holders  of  land  a  net  return, 
on  all  produce  raised  by  the  least  expensive  tillage,  equal 
to  the  differences  between  the  first  and  the  second  or 
increased  price.  This  difference  will  represent  the  advan- 
tage now  accruing  to  them  from  holding  a  natural  agent, 


RENT.  155 

and,  as  these  agents  are  all  taken  up,  this  difference  they 
can  demand  and  secure  for  the  loan  of  this  agent.  As 
fast  as  the  demand  for  food  increases,  and  the  price  rises, 
the  difference  between  the  two  prices  will  increase,  and 
rent  go  up,  —  the  appropriated  natural  agent  conferring 
more  and  more  of  advantage. 

Thus  the  fact,  that  land  is  limited,  and  that  this  limit 
is  not  instantaneously,  but  slowly  reached,  with  increasing 
exertion,  is,  by  making  a  difference  between  the  earlier 
and  later  stages  of  labor,  a  cause  of  rent.  Difference  of 
opportunity  is  the  sole  basis  of  rent;  he  who  is  in  the 
possession  of  the  higher  opportunity  demands  for  it  a 
recompense.  This  difference  arises,  both  from  the  limited 
amount  of  original  gifts,  and  from  the  variety  in  their 
intrinsic  worth,  in  their  fertility  and  position.  This  elas- 
ticity of  tillage,  by  which  it  gives  way,  but  with  increas- 
ing difficulty,  before  advancing  population,  is  the  brake 
by  which  the  motion  of  the  train  is  regulated,  —  is  the 
rubber  bed,  by  which  its  movement  is  made  pleasant  and 
safe. 

We  are  not  here  estimating  the  changes  produced  by 
any  new  methods  of  culture,  either  of  manures  or  instru- 
ments. 

Growing  skill  has  already  been  pointed  out  as  an  an- 
tagonistic element  to  the  general  law  of  agricultural  effort ; 
but  it  does  not,  except  by  retarding  the  advance  of  popu- 
lation upon  food,  modify  the  law  of  rent ;  since  skill  would 
aid  equally  both  the  earlier  and  the  later  culture,  and  still 
leave  the  same  relative  difference  between  them,  on  which 
difference  alone  rent  depends. 


156  POLITICAL   ECONOMY. 

$  2.  The  second  cause  of  rent  in  land  is  the  difference 
in  its  fertility  and  in  the  advantages  of  its  position.  Posi- 
tion, as  determining  the  ground  rent  of  tenements,  may- 
give  rise  to  great  inequalities  of  price,  within  a  relatively 
small  territory,  but  cannot,  as  affecting  the  market  of  pro- 
duce. Of  this  sufficient  has  been  said,  under  the  head  of 
production,  and,  for  the  present,  we  may  consider  position 
as  an  element  entirely  akin  to  fertility ;  fertility  and  posi- 
tion uniting,  now  by  addition,  now  by  subtraction,  to 
determine  the  preponderance  of  advantage  belonging  to 
any  farm.  There  is  but  little  first  class  land.  This  taken 
up,  second  class  land  will  come  into  demand.  But  the 
produce  of  such  land,  as  costing  more  labor,  must  bear  a 
higher  price  than  that  which,  up  to  this  point,  has  been 
borne  by  the  produce  of  first  class  land.  Hence,  a  rise 
of  price  goes  before,  and  is  the  cause  of,  the  extension  of 
culture  to  poorer  lands,  and,  also,  this  rise  of  price  is  the 
occasion  of  additional  returns  in  the  tillage  of  old  lands, 
thereby  giving  to  them  a  rent  equal  to  these  new  gains. 
Each  extension  of  culture  will  enlarge  this  rent,  and, 
whether  this  culture  is  passing  from  old  to  new  and  less 
fertile  lands,  or  from  a  less  to  a  more  rigorous  method,  on 
the  same  lands;  or,  whether  these  two  movements  are 
concurrent,  the  result  will  be  the  same  in  establishing  a 
difference  between  lands,  and  a  rent  proportioned  to  this 
difference. 

The  gradations  in  difficulty  of  culture  and  in  fertility  of 
soil  are  slight,  the  extremes  being  united  by  a  multiplicity 
of  means,  blended  at  every  step  of  transition.  We  may, 
however,  in  illustration  of  the  law  of  rent,  suppose  the 


RENT.  157 

steps  which  intervene  between  the  most  and  the  least 
advantageous  tillage,  to  be  marked  and  equal.  If,  in  any 
country,  there  be  first  class  land  yielding  forty  bushels  of 
wheat  to  the  acre,  and  second  class  land  yielding,  under 
similar  culture,  thirty-five  bushels,  and  also  third,  fourth, 
fifth,  and  sixth  class  lands,  yielding  respectively  thirty, 
twenty-five,  twenty,  and  fifteen  bushels  per  acre,  we  shall 
have,  with  sensible  gradations,  a  corresponding  scheme  of 
rent.  The  sixth  class  land  can  only  be  cultivated  when 
the  price  of  wheat  is  such,  that  fifteen  bushels  can  pay 
the  labor  expended  on  one  acre.  But,  according  to  the 
supposition,  the  labor  employed  on  land  yielding  forty 
bushels  per  acre  is  no  greater ;  hence,  we  should  have,  in 
the  hands  of  the  holders  of  this  land,  twenty-five  bushels 
as  the  yearly  value  of  this  natural  agent,  and  this  value 
would  measure  the  sum  for  which  they  would  be  willing 
to  resign  its  use,  or  measure  the  rent.  Numbers  two, 
three,  four,  five,  would  rent  respectively  for  twenty,  fifteen, 
ten,  and  five  bushels  of  wheat  per  acre,  and  number  six, 
only  compensating  the  labor  expended  on  it,  could  bear  no 
rent.  The  supposition  and  the  result  are  precisely  similar, 
if  we  suppose  the  diminished  returns  to  arise,  not  from  the 
occupation  of  less  fertile  land,  but  from  increased  labor 
expended  on  old  land.  There  is  still  the  same  inclined 
plane,  and  the  same  extra  force  in  price  requisite  to  force 
up  culture. 

When  the  space  between  any  two  steps  in  this  process 
is  a  perceptible  one,  the  price  will  considerably  augment 
itself  before  the  new  difficulty  will  be  encountered,  the 
new  land  brought  under  culture ;  but,  this  once  done,  and 

14 


158  POLITICAL   ECONOMY. 

the  returns  of  produce  beginning  to  be  enlarged,  there 
will  be  a  partial  depression  of  price. 

We  have  supposed  land  to  be  entered  on  in  the  order 
of  its  fertility,  and  the  natural  forces  at  work  will  obvi- 
ously occasion  this,  so  far  as  men  possess  any  standard  of 
better  and  best.  No  reason  can  be  assigned,  why  the 
poorer  soil  should  be  taken  in  preference  to  the  more  fer- 
tile, —  for,  with  the  transitory  and  capricious  forces  of  fear 
and  fraud,  Political  Economy  has  nothing  to  do,  —  but  the 
truth  of  our  law  does  not  depend  on  the  order  of  move- 
ment above  pointed  out,  inevitable  as  that  order  is.  If 
number  six  were  first  entered  on,  it  could  bear  no  rent ; 
and  when  number  five  should  come  to  be  occupied,  if  this 
occupation  did  not  result  in  the  entire  abandonment  of 
number  six,  number  five  would  at  once  bear  a  rent  of  five 
bushels  per  acre.  And  thus  throughout,  a  difference  really 
existing  in  the  quality  of  lands,  as  soon  as  these  lands 
were  occupied,  no  matter  in  what  order,  there  would  be  a 
corresponding  rent. 

$"3.  The  following  is  the  proposition,  expressing  the  law 
of  rent  as  applied  to  land  : 

Rent  arises  from  the  difference  of  advantage  existing  between  holders 
of  land ;  this  difference  arises,  first,  from  the  limited  quantity  and 
diminishing  poicer  of  land ;  secondly,  from  an  original  variety  in 
its  fertility ;  the  rent  of  any  land  is  measured  by  the  difference 
between  the  value  of  its  products  and  the  products  of  the  poorest 
land  under  paying  cultivation. 

It  is  not  meant  to  be  said  that  all  rent  is  this,  but  only 
that  this  is  the  true  rent,  to  which  actual  rent  more  or  less 


RENT.  159 

nearly  approximates.  A  custom  often  prevails,  of  letting 
land  at  the  halves ;  this  may  give  the  tenant,  according  to 
its  fertility,  either  more  or  less  than  the  true  rent. 

$  4.  A  tax  laid  upon  rent  is  borne  solely  by  the  holder 
of  land,  since  he  cannot  indemnify  himself  by  raising  the 
price  of  its  produce.  This  arises  from  the  fact  that  a  rise 
of  price  would  instantly  enlarge  the  circle  or  increase  the 
intensity  of  tillage,  and  thus,  by  crowding  the  market, 
again  reduce  the  price.  If  a  tax  be  laid  on  the  profits  of 
any  manufacture,  the  price  of  the  goods  manufactured  im- 
mediately rises  to  the  full  extent  of  the  tax,  and,  as  by 
this  rise  profits  are  only  restored  to  their  former  level  and 
to  what  is  still  their  level  in  all  other  departments,  no 
additional  stimulus  is  given  by  the  enhanced  price  to  that 
particular  manufacture,  but  rather  the  reverse.  Not  thus 
with  a  tax  on  rent ;  if  the  price  of  produce  were  thereby 
increased,  a  new  margin  would  be  given  to  cultivation ;  a 
new  culture  would  be  possible  under  this  higher  price,  and 
a  culture,  which  being  last,  would  furnish  no  rent,  and  pay 
no  tax,  but  which,  immediately  overstocking  the  market, 
would  reduce  the  price  to  its  former  level,  leaving  the 
holder  of  land  paying  rent  to  deduct  the  tax  from  that 
rent.  This  arises  from  the  fact  that  the  last  land  pays  no 
tax,  and  regulates  the  price  of  all  produce. 

This  inability  of  the  holder  of  land  to  escape,  even  in 
part,  the  tax  laid  upon  his  income,  has  made  him,  with 
some  economists,  a  favorite  object  of  taxation,  and  not 
without  great  reason,  in  those  countries  in  which  these 
original  gifts  have  been  monopolized,  being  largely  retained 


160  POLITICAL   ECONOMY. 

by  law  in  the  hands  of  a  limited  number  of  holders.  It  is 
certainly  fit  that  such  holders,  having  an  undue  portion  of 
the  original  forces  placed  at  the  disposal  of  all  men,  should 
in  part  share  these  gains  with  the  public,  and  support  a 
government  to  which  they  are  so  peculiarly  indebted. 
But  in  the  United  States,  where  land  is  open  to  all,  —  is 
constantly  changing  possessors,  and  represents  original 
sacrifice  and  labor  as  much  as  any  other  species  of  prop- 
erty, —  the  reasons  do  not  exist  for  tins  form  of  taxation. 

A  tithe  laid  early  in  the  history  of  a  country  on  the 
produce  of  land,  has  the  same  effect  on  population  .and 
production,  as  would  the  loss  of  one-tenth  of  the  fertility 
of  the  soil.  The  margin  of  cultivation  is  correspondingly 
less  extended.  The  last  land  being  now  compelled  to 
furnish  both  the  returns  of  the  labor  expended  and  the 
tithe,  tillage  stopping  short  at  an  earlier  point,  correspond- 
ingly straitens  population. 

Such  a  tithe,  imposed  at  a  later  stage,  when  population 
had  fairly  occupied  the  ground  before  it,  by  its  sudden 
action,  would  depress  the  habits  of  life,  and,  by  the  length 
of  time  for  which  it  must  necessarily  be  endured,  would 
tend  to  make  the  depression  permanent.  Such  a  tithe 
suddenly  removed  would  give  a  new  margin  to  population, 
which  might  result  in  a  higher  habit  of  life,  or  in  greater 
numbers,  or  in  both,  according  to  the  culture  and  self- 
control  of  the  people. 

Rent,  in  any  country,  will  increase  rapidly,  if  the  differ- 
ence in  the  quality  of  its  soils  is  great,  and  the  demand  for 
food  such  as  to  cause  these  to  be  all  occupied.  Rent, 
under  such  circumstances,  will  be  high,  both  on  account  of 


RENT.  161 

the  large  relative  advantage  belonging  to  the  best  farms, 
and  because  produce  will  bear  a  higher  price,  being  con- 
trolled by  the  difficult  culture  of  the  poorest  soil.  A 
uniformly  fertile  soil,  if  all  occupied  and  forced  into  high 
cultivation,  will  occasion  the  same  results. 

$  5.  The  natural  agent  next  in  importance  to  land  are 
mines.  These  conform  to  precisely  the  same  laws.  If 
any  metal  were  secured  only  at  a  single,  or  even  at  a  few 
mines  near  together,  this  strictness  of  limitation  would  act 
as  a  monopoly,  leaving  the  price  of  the  metal  very  much 
at  the  will  of  the  holder.  But  the  metals  and  minerals 
are  obtained  from  such  a  variety  of  places,  so  distant  from 
each  other,  that  they  come  fully  under  the  ordinary  laws 
of  competition.  There  is  a  certain  demand  for  any  metal ; 
this  demand  can  only  be  met  by  the  working  of  a  certain 
number  of  mines.  The  poorest  of  the  mines  so  worked 
must  make  sufficient  returns  to  reward  all  the  labor  and 
capital  employed.  It  cannot  do  much  more  than  this ; 
otherwise,  a  mine  of  still  inferior  quality  might  be  profita- 
bly worked.  Doing  this,  and  no  more,  it  can  pay  no  rent, 
and  all  other  mines  of  the  same  kind  will  pay  rent  ac- 
cording as  they  are  more  productive  than  this,  and,  by 
their  possession,  confer  a  peculiar  advantage.  The  sphere 
of  competition  between  mines  will  be  narrow  or  broad, 
according  to  the  preciousness  of  the  metal  or  mineral 
extracted.  Coal  is  so  bulky,  that  the  mines  of  a  single 
country  will  regulate  among  themselves  its  value  ;  gold, 
so  light  relatively  to  its  value,  that  any  mine  on  the  globe 
may  modify  that  value. 

14* 


162  POLITICAL   ECONOMY. 

Such  is  the  law  of  rent,  arising  from  the  variety  in 
fertility,  which  belongs  to  the  leading  natural  agents  — 
those  furnishing  produce.  The  second  class  —  those  fur- 
nishing power  —  are  more  variable  in  their  principles. 
The  chief  among  these,  steam,  is  practically  unlimited, 
and  secures  no  rent,  save  through  the  machinery  —  the 
steam-engine  —  by  which  it  is  applied.  This  engine, 
representing  capital,  obeys  its  laws,  and  the  returns  which 
arise  from  its  use,  or  which  are  represented  in  the  sum 
paid  for  its  use,  are  properly  profits. 

The  second  in  importance  among  these  agents,  water 
privileges,  conforms  to  the  general  law  of  rent.  These 
privileges  are  not  like  the  various  kinds  of  land,  good  to 
the  full  extent  of  their  resources,  but  unless  able  steadily 
to  yield  a  certain  force,  may  be  of  little  worth ;  if  so  able, 
of  great  worth.  A  partial  failure,  by  involving  the  sus- 
pension of  business,  may  nearly  destroy  the  value  of  what 
would  otherwise  be  the  best  privilege.  The  various  kinds 
of  manufacture,  requiring  a  great  variety  of  force,  and 
some  of  them  able  to  suspend  their  operations  during  the 
summer  months,  naturally  divide  these  privileges  into 
several  classes,  according  as  they  are  able  to  serve  the 
purposes  of  an  intermittent  and  limited,  or  a  more  constant 
and  enlarged,  manufacture.  At  one  extremity  is  the  saw 
mill  of  the  mountain  streams  ;  at  the  other,  the  woollen  or 
cotton  factory  of  the  larger  creeks  and  rivers.  Between 
these,  every  power  finds  profitable  employment. 

The  price  of  any  article  with  the  prevalent  demand 
makes  it  possible,  under  certain  disadvantages  of  position 
and  power,  to  manufacture  it,  capital  still  meeting  with  its 


RENT.  163 

ordinary  returns ;  under  greater  disadvantages,  this  is  not 
possible.  Now  the  worth  of  any  water  privilege,  and 
hence  the  rent  it  can  bear,  is  equal  to  the  difference  of 
advantage  —  position  and  force  both  considered  —  be- 
tween itself,  in  the  most  profitable  manufacture  in  which 
it  can  be  employed,  and  that  privilege  which,  employed  in 
the  same  manufacture,  can  only  yield  to  labor  and  capital 
ordinary  returns,  and  hence  can  bear  no  rent.  This  differ- 
ence is  of  the  same  character  with  that  between  better 
and  poorer  soils,  nor  is  it  difficult  to  determine  it.  The 
returns  for  the  year  of  any  manufacturing  establishment 
being  given,  and  that  which  is  due  to  capital  and  labor  of 
inspection  and  direction,  being  deducted,  the  remainder 
will  express  what  belongs  to  position  and  power  or  to  the 
privilege. 

A  water  power  may  not  be  worth  the  occupation,  may 
be  occupied  without  rent,  may  bear  rent,  under  an  advanc- 
ing state  of  manufactures,  precisely  as  land,  under  ad- 
vancing culture. 


CHAPTER    III. 

WAGES. 

$  1.  The  discussion  under  wages  naturally  divides  itself 
into  two  parts,  —  first,  the  principles  determining  wages, 
or  the  share  of  products  that  falls  to  the  laborers  ;  second, 
those  determining  the  amount  which  each  class  of  laborers 
receives.  Onr  first  inquiry,  then,  is,  what  defines  the 
share  of  the  joint  products  of  any  community  which  falls 
to  labor. 

Familiar  words,  which  we  all  think  we  understand,  are 
often  those  which  occasion  most  confusion.  From  their 
variety  of  application,  and  the  imperceptible  manner  in 
which  they  glide  from  one  meaning  to  another,  we  are  left 
unobservant  of  the  change,  and  suppose  that  true  in  one 
signification  which  is  only  true  in  another  and  quite  differ- 
ent signification.  To  this  class  belong  the  words  high  and 
lotv,  as  applied  to  wages.  In  common  speech,  they  bring 
to  the  mind  the  idea  of  money  price,  —  the  one  implying 
that,  in  dimes  and  dollars,  labor  receives  a  greater,  and  the 
other  that  it  receives  a  less,  than  the  ordinary  compensa- 
tion. Bat  this,  in  the  discussions  of  Political  Economy,  is 
the  least  important  of  their  meanings,  since  it  by  no 
means  defines  the  true  state  of  wages  —  of  the  compen- 
sation received  by  the  laborer.    It  matters  little,  how  much 


WAGES.  1G5 

money  has  been  received,  unless  this  money  has  a  corre- 
sponding purchasing  power.  It  is  in  the  food  and  enjoy- 
ments commanded  by  the  money,  and  not  in  the  money 
itself,  that  the  compensation  consists,  and  hence,  by  the 
amount  of  these,  wages  are  determined  as  high  or  bw. 
Much  money  may  command  but  little  food,  and,  if  so,  it 
may  nominally  constitute  high,  but  actually  constitutes 
low,  wages.  Also,  in  our  discussions  prior  to  the  consid- 
erations of  money,  we  have  confined  ourselves  to  barter, 
—  a  direct  exchange  of  commodities,  —  since  the  princi- 
ples of  Political  Economy  are  wholly  independent  of  the 
action  of  money,  as  a  medium  of  exchange,  and  are  more 
readily  apprehended  without  its  introduction.  The  second 
meaning  attached  to  these  words  is  that  by  which  they 
express  the  portion  of  products  falling  to  labor,  and  which 
constitute  its  real  compensation.  So  used,  they  define 
the  state  of  the  laborer,  whether  of  ease  or  of  privation, 
and  mark,  as  far  as  possible,  that  which  is  actual  —  is 
absolute  in  wages.  The  laborer,  in  this  sense  possessed 
of  high  wages,  whatever  may  be  their  money  measure,  is 
possessed  of  high  enjoyments,  and  a  position  inviting  to 
prudence  and  effort.  This  use  defines  the  actual  state  cf 
laborers,  the  most  important  of  productive  agents,  and 
hence  the  state  of  production. 

A  third  use  is  that  by  which  these  words  designate,  as 
between  the  laborer  and  capitalist,  the  relative  portion  of 
each.  Labor  is  almost  always  united  with  capital,  and  the 
aggregate  returns  remain  to  be  divided  between  the  two. 
These  are  often  aided  by  natural  agents ;  but  these  agents, 
according  to  a  law  already  pointed  out,  either  give  their 


166  POLITICAL  ECONOMY. 

aid  for  nothing,  or  at  once  secure  for  themselves  a  definite 
portion,  which  cannot  be  withheld ;  and  it  is  only  in  refer- 
ence to  the  remainder  that  capital  and  labor  are  left  to 
adjust  their  claims.  This  remainder  once  found,  their  joint 
return  limits  them  both,  and  what  falls  to  the  one  is  neces- 
sarily taken  from  the  other. 

The  terms  high  and  low  are  sometimes  employed  to 
express  the  relative  share  which  fails  to  labor,  and,  as  so 
used,  define  the  forces  under  which  the  division  has  taken 
place,  —  the  encroachment  of  wages  on  profits,  and  of 
profits  on  wages.  This  is  an  exceedingly  important  use, 
but  one  which,  unless  kept  wholly  distinct  from  the  pre- 
ceding, occasions  great  confusion  and  error.  Wages  and 
profits  cannot  be  both  relatively  high,  yet  both  may  be 
absolutely  high,  since  the  joint  return  to  be  shared  by  them 
may  be  large.  From  the  same  cause,  wages  may,  at  the 
same  time,  be  relatively  low  and  absolutely  high.  This 
use  of  these  terms  does  not  determine  the  real  state  of 
laborers,  but  the  relation  of  laborers  to  capitalists;  and 
this  it  is  frequently  desirable  to  point  out. 

To  escape  confusion,  if  we  wish  to  speak  of  high  and 
low  wages,  as  measured  in  money,  we  shall  say  a  high 
and  a  low  price  of  labor ;  if  of  real  wages,  we  shall  term 
them  directly  high  and  loiv ;  if  of  wages  in  reference  to 
profits,  we  shall  employ  the  terms  relatively  high  and 
relatively  low.  Our  nomenclature  is  thus  at  once  full  and 
distinct. 

$  2.  A  second  difficulty  to  be  pointed  out  in  entering  on 
this  discussion,  is  that  which  arises  from  the  want  of  any 


WAGES.  167 

standard  of  comparison,  by  which  the  amount  of  labor  un- 
dergone in  the  various  kinds  of  production  may  be  deter- 
mined, or  a  comparison,  between  wages  in  different  coun- 
tries, and  between  different  kinds  of  exertion,  be  effected. 
Labor  may  be  estimated  both  by  the  time  occupied,  and 
by  the  amount  accomplished.  The  first  of  these  methods, 
even  where  the  kind  of  labor  in  the  cases  compared  is 
similar,  affords  but  very  general  and  loose  results.  A  day, 
month,  or  year,  are  not  definite  periods  in  the  calendar  of 
Political  Economy.  The  number  of  hours  constituting  a 
day's  labor  is  different  in  different  communities ;  and  alike 
various,  the  time  taken  from  the  year  and  given  to  holi- 
days in  Protestant  and  Catholic  nations.  But  this  is  but 
secondary  among  those  causes  which  render  comparison 
so  unsatisfactory.  If  the  number  of  hours  of  labor  in- 
cluded in  these  terms  were  the  same,  the  actual  available 
effort  put  forth  by  different  persons  in  the  same  time,  en- 
gaged in  work  in  all  respects  similar,  is  very  different.  An 
unskilled  workman  may  secure,  nominally,  a  lower  price 
for  his  labor,  than  a  skilled  workman ;  and  yet,  in  compari- 
son of  the  work  performed,  receive  the  largest  wages. 
Still  more  is  it  impossible  to  secure  results  approximating 
accuracy,  when  we  compare  labor,  in  different  occupations, 
by  the  time  occupied.  Loose,  as  this  measure  of  labor  by 
time  is,  its  practical  convenience  is  so  great,  that  all  lesser 
differences  are  overlooked,  and,  in  rendering  its  compensa- 
tion, labor  is  usually  so  estimated.  The  movements  of 
social  life,  though  subject  to  law,  do  not  depend  on  any 
such  nice  balance  of  forces,  as  to  call  for  mathematical  ac- 
curacy.    It  is  sufficient,  for  their  perfect  success,  that  an 


168  POLITICAL   ECONOMY, 

approximate  measurement  of  labor,  striking  roughly  at  its 
just  recompense,  be  secured ;  there  is  no  net  weight  in  the 
payment  of  wages.  As  the  result  of  tins,  social  laws  are 
but  the  more  firm  and  reliable  in  their  action,  since  there 
must  be  a  greater  strength  in  the  combination  of  circum- 
stances which  suspend,  or  seriously  modify  them.  They 
are  made  to  work  with  and  over  the  ordinary  variety  and 
loose  estimates  of  common  life. 

The  second  manner  in  which  labor  is  estimated,  is  by 
the  work  done.  This  is  more  accurate  than  the  last,  and 
yet  not  accurate.  Those  articles  which  are  everywhere  of 
nearly  the  same  quality,  as  a  bushel  of  wheat  or  of  corn, 
are  yet  secured  by  very  different  amounts  of  labor,  accord- 
ing to  the  fertility  of  the  soil  of  which  they  are  the  pro- 
duce. No  agricultural  product  can  afford  an  accurate 
measurement  of  the  labor  which  has  secured  it,  since  the 
assistance  rendered  by  the  natural  agent  employed  is  ever 
changing,  ever  varying  the  toil  of  the  farmer.  In  manu- 
factured commodities,  there  must  be  a  standard  of  quality, 
enabling  those  of  the  same  kind  to  be  compared  with  each 
other,  and  also  an  equality  in  the  aid  furnished  to  labor  by 
machinery  and  capital,  before  the  articles  produced  can 
enable  us  to  measure  and  compare  the  exertion  from  which 
they  have  sprung.  It  is  evident  that,  between  distant 
times  and  places,  when  the  inquiry  becomes  most  interest- 
ing, these  commodities  can  render  least  assistance,  since 
the  variety  in  the  circumstances  of  their  production,  and 
hence  in  the  labor  which  equal  quantities  represent,  will 
be  proportionally  great.  If  there  was  any  one  commodity, 
which  everywhere,  and   at  all  times,  required,  for  equal 


WAGES.  169 

quantities,  equal  exertion,  such  a  commodity  would  be  a 
standard,  by  means  of  which  the  labor  of  different  times 
and  commodities  might  be  compared,  and  its  relative  price 
determined;  the  change  which  had  taken  place  in  the  cost 
of  all  other  articles  would  at  once  be  made  apparent,  by 
marking  the  different  quantities  in  which  they  exchanged, 
at  the  several  times  and  places,  for  this  article  of  station- 
ary value.  Yet,  even  then,  our  comparison,  though  greatly 
aided,  would  not  be  perfectly  accurate,  since,  though  we 
should  have  a  fixed  point  to  which  others  might  be  refer- 
red,— an  invariable  quantity — a  unit  in  our  table  of  meas- 
urement,— we  should,  no  more  than  before,  be  able,  in  any 
kind  of  labor  different  from  that  to  which  the  standard 
belonged,  to  determine  the  intensity  of  exertion  required 
by  it,  and  hence,  the  difference  between  that  labor  and  the 
labor  measured  in  the  standard.  Measuring  one  form  of 
labor,  is  not  equivalent  to  measuring  all  forms ;  if  we  knew 
the  precise  amount  of  labor  represented  in  an  ounce  of 
gold,  we  should  not,  thereby,  know  the  amount  represented 
in  the  silk  goods  bartered  for  it.  We  should  only  know, 
that  the  labor  and  profits  of  the  one,  were  roughly  judged 
equal  to  the  labor  and  profits  of  the  other. 

But  there  is  no  commodity  containing  unvarying  amounts 
of  labor ;  all  our  estimates  of  the  several  kinds  of  labor, 
as  compared  with  each  other,  and  the  compensations  sev- 
erally received,  are  general  and  approximate,  without  any 
common  standard,  or  possibility  of  a  reduction  to  a  com- 
mon denomination ;  nor  is  anything  more  requisite  to  secure 
firm  and  uniform  action  in  the  practical  world,  and  to  inau- 
gurate the  laws  which  govern  this  department.    That  these 

15 


170  POLITICAL    ECONOMY. 

approximate  estimates  must  remain,  is  evident,  when  we 
recollect  that  labor  is  not  intrinsically  homogeneous  —  is 
not  pure  physical  force,  but  is  the  mingled  result  of  force, 
habit,  instincts,  and  judgment.  So  far  as  a  comparison  can 
be  affected,  it  will  usually  be  found  that  the  apparent  dis- 
crepancy in  the  price  of  labor,  in  different  places,  is  greater 
than  the  real,  and  that  the  same  degree  of  efficiency  and 
skill  everywhere  secure  wages,  not  widely  different.  Nom- 
inal wages  in  one   country,  twice  or  thrice   those  in  an 

/adjoining  country,  are  usually  the  indices  of  correspond- 
ingly superior  exertion  and  skill. 

The  price  of  labor,  especially  when  this  price  represents, 
not  the  time  expended,  but  the  amount  accomplished,  is 
very  far  from  being  a  safe  criterion  by  which  to  judge  of 
the  condition  of  the  laborer.     The  laborer  is  principally  in- 

^•terested  in  the  amount  of  wages  from  the  aggregate  exer- 
tion of  the  year ;  and  this,  where  labor  is  very  efficient, 
and  the  demand  firm,  may  be  large,  though  the  price  for 
each  distinct  job  may  seem  small.  On  the  other  hand, 
indolent  and  unskilled  labor  may  realize  but  little  from 
prices  in  themselves  high.  A  high  price  of  labor  makes 
for  the  interest  of  the  laborer,  but  still  more,  that  efficiency 
upon  which  the  year's  returns  mainly  depend.  Here,  the 
interest  of  the  capitalist  and  the  laborer  are  the  same.  A 
large  amount  of  wages,  the  result  of  skill  and  industry,  is 
in  harmony  with  large  profits.  It  is  only  a  high  price  of 
labor,  which  is  attendant  on  indolence  and  ignorance,  that 
restricts  the  capitalist,  both  in  the  amount  of  the  business 
done,  and  in  the  returns  of  that  business.  It  was  neces- 
sary to  premise  this  much,  in  order  to  understand  the  nature 


WAGES,  171 

of  the  agent,  labor,  and  the  method  of  the  laws  which  con- 
trol its  compensation. 

$  3.  The  immediate  or  proximate  cause  which,  at  any- 
time, or  in  any  place,  determines  wages,  is  the  amount  of . 
the  wages-fund,  or  of  capital  set  apart  to  pay  wages,  as 
compared  with  the  number  of  laborers,  between  whom  it 
is  to  be  divided.  This  assertion  calls  for  little  explanation. 
The  wages-fund  includes  all  that  is  destined  for,  or,  in 
other  words,  all  that  reaches  the  laborer ;  and  the  reward  of 
the  individual  is  evidently  the  whole  reward  divided  by  a 
number  representing  the  whole  labor,  his  own  labor  being 
the  unit.  We  may  suppose  that  there  are  no  returns  to 
labor  or  capital,  except  at  fixed  intervals  of  six  months, 
and  that,  at  the  commencement  of  each  of  these  periods, 
from  the  funds  just  realized,  sums  are  set  apart  for  the 
several  purposes  in  which  they  are  afterwards  actually  em- 
ployed. It  is  evident,  that  the  only  portion  of  these  sums, 
in  which  the  laborer  would  have  any  interest,  would  be 
that  designed  to  pay  wages.  The  commodities  realized 
and  containing  their  full  quota  of  labor,  and  now  set  apart 
for  the  consumption  of  the  capitalists,  are  nothing  to  him ; 
those  which  are  fixed  capital,  and  to  remain  as  fixed  cap- 
ital, are  nothing  to  him,  save  as  they  increase  that  produc- 
tion whose  products  he  is  to  share  in  the  six  months, 
succeeding  the  present.  All  in  which  he  has  any  imme- 
diate interest  is  the  fund  set  apart,  for  the  current  six 
months,  to  pay  labor,  and  this  he  must  share  with  all  who 
perform  that  labor.  Nor  is  the  case  altered,  if,  as  an  arti- 
san or  small  land -holder,  the  laborer  employs  himself.     In 


172  POLITICAL   ECONOMY. 

that  case,  he  advances  to  himself,  from  the  returns  of 
previous  labor,  the  comforts  and  enjoyments  of  the  present 
six  months,  expecting  at  the  expiration  of  this  period  to 
replace  them,  or,  anticipating  the  returns  of  present  labor, 
and  obtaining  credit,  he  expends  his  income  before  it  is 
secured.  On  either  supposition,  the  funds  realized  by 
him,  as  the  results  of  labor,  constitute,  for  the  six  months 
in  which  they  are  obtained,  a  part  of  the  wages-fund. 

It  is  evident  that  the  state  of  the  laborer  for  any  six 
months  on  the  above  supposition,  is  determined  by  the 
periods  which  have  preceded.  The  proximate  cause  and 
measure  of  wages  is  the  wages-fund,  but  the  amount  of 
this  at  the  beginning  of  each  period  has  already  been  de- 
termined. What  are  the  causes  which  have  occasioned 
and  measured  its  amount  ? 

First  among  these  is  the  productiveness  of  labor.  It  is 
this  which  determines  the  amount  of  commodities,  pro- 
duced by  and  for  the  whole  community  ;  and  the  value  of 
the  portion  which,  in  the  division,  shall  fall  to  the  laborer. 
The  one-half,  one-third,  or  one-fourth,  will  be  great,  accord- 
ing as  the  whole  sum  is  great.  The  skill,  intelligence,  and 
virtue  which  belong  to  the  laborer,  the  efficiency  of  the 
machinery  and  natural  agents,  and  the  amount  of  the  cap- 
ital by  which  they  are  aided,  unite  to  enlarge  the  common 
production,  and  to  augment  the  enjoyments  of  those  who 
have  been  leading  agents  in  the  movement.  Chief  among 
the  causes  on  which  the  productiveness  of  labor,  and 
hence,  thus  far,  the  condition  of  the  laborer  depend,  is  his 
intelligence  —  an  intelligence  manifested  in,  and  sustained 
by,  virtue.  This  draws  with  it  skill,  capital,  machinery, 
and  that  multiplication  of  products  which  is  their  result. 


WAGES.  173 

The  second  of  the  causes  measuring  the  wages-fund,  is 
the  previous  habits  of  capitalists  and  laborers,  determining 
the  amount  which,  in  the  division  of  their  common  returns 
falls  to  each.  The  first  cause  settles  the  absolute  amount 
of  products  resulting  to  all ;  the  second,  the  relative  amount 
resulting  to  the  laborer.  The  one  gives  the  ratio  which 
the  portion  of  the  laborer  bears  to  the  whole ;  the  other,  the 
absolute  value  of  that  portion. 

$  4.  If  the  processes  of  production  have  been  for  six 
months  in  full  and  undisturbed  operation,  there  will  be,  at 
the  expiration  of  that  time,  a  large  accumulation  of  pro- 
ducts to  be  divided  among  the  holders  of  natural  agents, 
the  laborers  and  the  capitalists.  The  principles  which 
govern  this  division  are  not  at  all  affected  by  the  supposi- 
tion that  it  takes  place  at  the  end  of  definite  periods, 
though,  in  practice,  it  is  silently  taking  place  in  the  daily 
payment  of  wages,  purchase  of  material,  and  consumption 
of  private  life.  Nor  need  we  here  consider  the  portion  of 
Uhese  common  returns,  which  government  by  taxation  takes 
xo  itself.  The  sum  which  each  of  these  three  classes  pay 
to  government  is  correctly  and  conveniently  regarded  as  a 
part  of  their  private  expenditure,  in  return  for  the  advan- 
tages which  government  confers.  The  portion  of  these 
products  which  falls  to  holders  of  natural  agents,  as  rent, 
is,  under  any  given  set  of  circumstances,  fixed  by  laws 
sufficiently  pointed  out,  and  will  enter  in  as  a  part  of  the 
price  of  the  raw  material,  consumed  in  the  six  months' 
production.  Rent  being  deducted,  there  remain  wages  and 
profit  still  unseparated.     The  principles  which  govern  their 

15* 


174  POLITICAL   ECONOMY. 

division  will  fix  the  wages-fund,  and  through  the  price  of 
labor,  will  fix  the  portion  of  the  capitalist,  and  the  rate  of 
profits.  Wages  and  profits  are  the  complements  of  each 
other ;  that  which  defines  one  in  its  amount,  defines  the 
other  ;  and  the  discussion  of  either,  involves  the  discussion 
of  both.  A  clear  solution  of  the  principles  which  govern 
the  division  of  products  between  labor  and  capital,  is 
among  the  most  important  and  difficult  of  the  problems  of 
Political  Economy,  and  necessarily  requires  patient  and 
careful  thought. 

The  returns  of  capital  are  expressed  by  a  rate  per 
cent. — a  number  showing  the  products  received  each  year 
on  every  hundred  of  the  products  of  the  same  denomina- 
tion, reserved  or  loaned  as  capital.  This  rate  per  cent,  in 
which  the  profits  of  capital  show  themselves,  will  be  the 
same,  or  nearly  the  same,  in  all  departments  of  production; 
since,  were  it  otherwise,  capital  would  rapidly  transfer 
itself  to  the  most  profitable  employment,  till,  by  compe- 
tition, its  returns  were  reduced  to  the  general  level."  The 
inequalities  which  practically  exist  are  slight,  and  do  not 
demand  consideration  in  this  connection.  We  shall  also 
suppose,  for  the  present,  that  capital  is  advanced  in  the 
several  kinds  of  production  for  the  same  period,  and,  at  a 
later  point,  mark  the  effects  occasioned  by  the  practical 
inequality  in  the  times  in  which  its  returns  are  realized. 

In  a  given  community,  whose  circumstances  are  for  the 
moment  fixed,  and  which  is  just  entering  on  the  production 
of  the  next  six  months,  the  amount  of  capital  seeking  em- 
ployment, compared  with  the  number  of  laborers  through 
whom  it  can  alone  be  employed,  proximately  determines 


WAGES.  175 

wages  and  the  rate  per  cent.  Equal  amounts  of  capital 
do  not  call  for  precisely  equal  amounts  of  labor  without 
reference  to  the  kind  of  production  in  which  it  is  engaged. 
Occupations  which  involve  a  large  fixed  capital,  or  a  large 
consumption  of  raw  material,  give  employment  to  less  labor 
in  proportion  to  the  capital  invested,  than  those  in  which 
the  value  of  the  product  is  more  entirely  the  result  of  labor. 
But  in  all  capital  which  is  loaned,  which  renders,  in  any 
way,  a  profit,  which  is  properly  capital,  and  not  hoarded 
wealth,  there  is  a  demand  for  labor,  and,  in  proportion  to 
the  intensity  of  this  demand,  will  be  the  price  of  labor. 
At  any  given  time,  given  amounts  of  capital  and  of  labor 
are  in  the  market,  and  the  price  of  each  is  determined  by 
the  same  cause  which,  proximately  and  for  the  time  being, 
settles  all  prices  —  the  relation  of  the  supply  to  the  de- 
jnand.  What  is  peculiar,  in  the  case  of  labor  and  capital, 
is  their  mutual  dependence  ;  that  one  cannot  be  employed 
without  the  other  ;  that  the  presence  of  the  one,  constitutes 
the  demand  for  the  other ;  and  that  the  deficiency  of  the 
one,  indicates  the  surplus  of  the  other. 

A  given  amount  of  capital,  seeking  given  investment, 
calls  for  a  certain  amount  of  labor.  If  the  community  in 
which  this  capital  is  present,  is  able  to  furnish  just  this 
amount  of  labor,  and  no  more,  then,  the  two  forces  for 
that  state  of  society  are  in  equilibrium.  The  skill,  habits, 
and  social  condition  of  the  working  class  —  themselves 
results  of  competition  and  the  history  of  the  past — as  com- 
pared with  the  position  and  resources  of  the  capitalist  will 
decide  what  each  will  be  willing  to  take,  what  each  can 
demand  that  he  shall  receive.     In  this  case,  the  problem 


176  POLITICAL  ECONOMY. 

has  virtually  been  settled  in  the  past,  by  the  skill  and  char- 
acter of  labor,  its  own  competition  and  the  state  of  capital, 
and  receives  no  new  modification  in  the  present.  If  the 
community  is  not  able  to  furnish  the  amount  of  labor 
demanded,  there  will  be  a  rise  of  wages,  springing  from 
the  competition  of  capitalists  in  their  efforts  to  secure  the 
labor  actually  offered.  This  high  price  will  be  permanent 
or  transient,  according  to  the  effect  which  it  has  on  the 
habits  of  the  laborers.  If  they  are  determined  to  retain 
the  new  enjoyments,  and  exercise  the  necessary  prudence, 
they  can  be  retained.  Without  this  determination  and 
prudence,  a  new  stimulus  will  be  given  to  population, 
which  will  shortly  eat  up  and  waste  this  possible  progress, 
and  leave  the  laborers  to  fall  back  to  their  old  rank.  A 
rapid  and  universal  rise  of  wages,  by  familiarizing  the 
lower  classes  with  a  better  state  of  things,  exerts  on  them 
a  powerful  redeeming  influence.  If  the  community  is  more 
than  able  to  furnish  the  labor  wished,  there  springs  up  a 
competition  between  laborers  for  the  employment  offered, 
and  wages  fall.  The  depressed  habits  and  enjoyments  of 
this  new  and  less  fortunate  state,  may  call  forth  increased 
prudence  on  the  part  of  the  laborer;  and  the  enhanced 
profits,  increased  abstinence  on  the  part  of  the  capitalists, 
till  the  equilibrium  is  again  restored,  and  former  comforts 
resumed;  or,  through  familiarity  with  an  inferior  position, 
its  motives  and  feelings  may  become  habitual,  and  the 
lower  classes  sink  permanently  in  the  scale  of  social  life. 

$  5.    We  have  now  seen,  that  the  immediate  cause,  de- 
termining at  the  commencement  of  any  six   months  the 


WAGES.  177 

rate  per  cent,  and  wages-fund,  is  the  ratio  which  the  cap-  ^ 
ital  and  labor,  seeking  employment  for  that  period,  bear  to 
each  other.  But  the  actual  state  of  any  community,  what- 
ever it  may  be,  whether  for  the  advantage  of  the  laborer 
or  of  the  capitalist,  or  simply  transmitting  previous  forces 
in  undisturbed  action,  is  itself  a  result,  due  to  the  previous 
conduct  of  laborers  and  capitalists  ;  and  we  wish  to  know, 
what  that  is  in  the  past  which  has  occasioned  it  ?  That  in 
the  character  and  conduct  of  the  laborer,  on  which  his 
position  most  depends,  and  which,  working  all  along  the 
past,  is  ever  settling  the  fortunes  of  the  present,  is  intel- 
ligence —  an  intelligence  that  recognizes  and  includes 
right  action  in  the  lower,  still  more  in  the  higher  sense. 
We  have  already  spoken  of  skill,  a  form  of  intelligence,  as 
multiplying  the  amount  of  products,  and  thus  the  wages- 
fund  :  it  also  makes  the  laborer  less  dependent  on  the  cap- 
italist, and  enables  him  to  demand  more  successfully  a 
larger  relative  portion  of  the  common  returns,  and  to  resist  ^ 
more  successfully  any  diminution  of  that  portion.  Ignor- 
ant laborers  have  but  few  directions  in  which  they  can 
find  employment,  and,  hence,  are  liable  to  be  much  more 
severely  pressed  by  the  competition  of  numbers.  Not  able 
to  change  their  service ;  not  able  even  for  a  limited  period 
to  be  their  own  masters,  whenever  there  is  any  want  of 
occupation,  they  are  delivered  into  the  hands  of  the  capi- 
talist and  must  suffer  the  full  forfeiture  of  weakness.  On 
the  other  hand,  intelligent  and  skilful  labor  is  able  to  open 
to  itself  many  new  resources,  and  to  escape  from  the  pres- 
sure of  one  department  into  the  open  places  of  another. 
In  other  words,  when  capital   is  limited,  ignorant  labor 


178  POLITICAL   ECONOMY. 

cannot  so  well  develop  all  its  powers  and  make  it,  in  small 
amounts,  available  in  so  great  a  variety  of  directions,  as  in- 
telligent labor ;  hence,  the  one  feels  more  immediately  and 
severely  the  depression  of  numbers  than  the  other.  In  the 
contest  with  capital,  intelligent  labor  best  understands,  and 
most  successfully  claims,  all  its  rights. 

But  in  the  conduct  of  the  laborer,  the  most  important 
principles  are  the  self-respect  and  prudence,  which  come 
in  connection  with  intelligence.  It  is  the  ratio  of  popula- 
tion to  capital,  that  is  of  chief  interest  to  the  working 
classes,  and  this  ratio  is  largely  at  their  own  disposal.  It 
is  from  the  competition  of  their  own  numbers  that  they 
most  suffer,  and  this  competition  they  themselves  create. 
Prudence  and  self-respect  occupy  the  ground  no  faster 
than  it  freely  lies  before  them,  and  deem  an  offspring, 
which  they  cannot  support  and  which  has  no  fair  oppor- 
tunity to  support  itself,  a  reproach.  The  complete,  and 
what  must  ever  be,  the  ultimate  remedy,  is  with  the 
laborer ;  but  nothing  save  thorough  intelligence  with  its 
accompanying  self-respect  will  induce  him  to  apply  it. 
The  remedy  once  employed,  no  one  will  be  conscious  of 
its  existence.  Marriages  will  be  a  little  later  and  a  little 
wiser,  but  the  idea  of  self-denial  and  privation  will  no 
more  be  suggested,  than  by  the  economy  and  prudence  of 
most  American  artisans.  With  few  exceptions,  it  is  only 
the  poorest  classes  that  think  it  their  birthright  to  marry 
when  they  will,  and  multiply  children  as  they  will. 

$  6.  On  the  part  of  the  capitalist,  that  which  especially 
influences  the  wages-fund  is  the  strength  of  the  motives 


WAGES.  179 

to  abstinence.  These  are  furnished  by  the  state  of  the 
society  and  government  within  whieh  capital  is  employed. 
Under  a  tyrannical  government,  whose  exactions  are  made 
by  no  rule,  but  fall  where  they  are  expected  to  be  most 
successful,  capital,  in  the  processes  of  industry,  assuming 
an  open  and  inviting  form,  is  especially  exposed  to  plun- 
der ;  and,  thereby,  the  motives  to  abstinence,  or  to  a  use 
of  that  which  has  been  secured  by  abstinence,  are  greatly 
weakened.  Capital  is  constantly  withdrawing  into  hoards, 
and  ceasing  to  render  its  appropriate  aid  to  labor.  It  is  a 
prime  requisite,  that  government,  both  in  reference  to  itself 
and  others,  should  afford  that  safety  and  inviolability  to 
private  property,  in  connection  with  which  alone  can  spring 
up  a  free  and  luxuriant  social  life. 

The  motives  furnished  to  abstinence  also  depend  largely 
on  the  state  of  the  useful  and  elegant  arts ;  on  the  number 
of  things  offered  to  gratify  desire,  and  demanded  to  sus- 
tain rank.  In  rude  times,  the  distinctions  of  rank  consist 
largely  in  the  number  of  retainers;  and  services  are  the 
products  by  which  wealth  is  estimated.  Such  times  give 
comparatively  little  encouragement  to  industry.  In  later 
periods,  the  command  of  services  is  considered  of  less 
importance,  than  the  command  of  commodities  ;  wealth 
accumulates  and  reveals  itself  in  the  several  kinds  of 
products  ;  labor  receives  the  aid  of  capital,  and  is  able  to 
find  something  of  independence  in  the  necessities  which 
now  attach  to  its  products. 

But  the  laborer  is  not  interested  alone  in  the  number  of 
things  offered  for  purchase  and  inviting  the  acquisition  of 
wealth,  but  also  in  their  character.     If  these  are  such  as  to 


ISO  POLITICAL    ECONOMY. 

call  forth  a  luxurious  and  prodigal  self-indulgence,  the  pride 
and  vanity  which  they  gender  in  the  capitalist  may  well 
be,  and  are  usually,  but  the  counterparts  of  the  ignorance 
and  servility  of  the  lower  classes.  When  rank  measures 
itself  in  luxury,  there  is  generally  somewhere  a  profound 
abyss  of  poverty,  —  a  zero  point  in  enjoyments,  from  which 
the  scale  of  selfish  consumption  moves  upward.  Poverty 
and  wretchedness  are  but  the  foils  and  background  of 
wealth  and  vanity.  The  selfishness  which  is  engendered 
by  indulgence,  readily  excuses  itself  from  its  duties  to  the 
many,  and  is  too  strong  for  moral  ties.  Neither  have  the 
laws  of  economic  science  power,  to  their  full  extent,  to 
benefit  the  masses,  till  generous  and  conscientious  impulses 
regulate  the  action  of  the  wealthy.  Those  laws  will  work, 
and  work  good  amid  great  moral  perversion,  but  they  only 
work  their  highest  good,  when  sustained  by  moral  perfec- 
tion. Those  laws,  though  resisting  the  disorganizing  power 
of  selfishness  with  more  toughness  and  stoutness,  than 
those  regulating  any  other  part  of  our  action,  and,  indeed, 
finding  in  the  eager  impulses  of  gain  much  of  general 
good,  do  not  ally  themselves  with,  or  find  their  fullest  good 
in,  the  vanity-fair  of  selfishness ;  but  look  for  the  largest 
and  best  production — a  production  designed  for  all — to  the 
rational  and  generous  expenditure  of  capitalists.  The 
Elysium  of  a  true  Political  Economy  is  not  the  Elysium 
of  luxury,  since  luxury  has  reference,  not  to  absolute  and 
general,  but  to  relative  and  individual,  enjoyments  ;  is  only 
luxury  as  it  places  the  few  in  the  sedan  of  pleasure  to  be 
drawn  by  the  many;  is  only  luxury  as  it  prematurely  gath- 
ers in  and  devours  the  common  good,  but  in  that  higher 


WAGES.  181 

state  in  which  its  laws  are  joined  to,  and  administered  by, 
a  law  of  love  ;  in  which  it  confers  its  products  freely  upon 
all,  and  above  all,  on  the  laborer,  its  own  chosen  instru- 
ment. Political  Economy  should  be  reserved  from  the 
imputation  of  finding  its  highest  good  in  the  miserly  mean- 
ness, or  the  prodigal  selfishness  of  the  few. 

Though  consumption  is  the  only  motive  to  production, 
though  this  is  all  that  invites  men  to  abstinence,  the  laborer 
is  yet  greatly  interested  in  the  kind  of  consumption  which 
secures  abstinence,  and  is  cherished  by  it.  Luxury  accu- 
mulates capital,  that  it  may  withdraw  it  again  in  the  con- 
sumption of  individual  vanity.  The  community  receive  a 
benefit  from  its  acquisition,  but  not  from  its  ultimate  use ; 
this  redounds  to  a  private  and  public  injury.  Not  so,  that 
expenditure  which  is  broad,  democratic,  and  benevolent ; 
which  aims  at  education,  at  invention,  at  science,  at  beauty, 
and  moral  excellence  ;  that  which  is  ever  issuing  in  the 
common  good,  and  makes  individual  enjoyments  but  the 
image  of  those  to  which  it  is  struggling  to  raise  the  enjoy- 
ments of  all.  Such  expenditure  may  present,  to  many 
minds,  no  motive  for  abstinence  and,  for  them,  an  inferior 
motive  has  been  provided,  that  they  may  still  toil  on, 
though  blindly,  selfishly,  and  somewhat  weakly,  in  the  in- 
terests of  production.  Capital  does  something  when  it 
feeds  a  retinue  of  servants ;  more,  when  it  transforms  ser- 
vants into  artisans,  and  purchases  their  commodities ;  still 
more,  when  it  employs  its  resources  and  the  intelligence 
which  should  accompany  those  resources,  in  watching  over 
the  social  and  intellectual  interests  of  all.  That,  then,  in 
the    previous   conduct  of  the  capitalist,  which   helps  to 

16 


182  POLITICAL   ECONOMY. 

determine  the  economic  state  of  society,  and  through  it, 
the  rate  per  cent,  and  wages-fund,  is  the  strength  of  the 
motives  to  abstinence,  giving  rise  to  capital ;  the  methods 
of  expenditure,  determining  the  power  of  profits  or  capital 
when  consumed  to  modify  or  improve  the  condition  of  the 
laborer. 

$  7.  Intimately  connected  with  the  conduct  of  capitalists, 
and  affecting  the  given  economic  state,  are  the  kind  of 
employments  in  which  capital  is  invested,  and  the  length 
of  time  in  which  the  returns  are  realized.  Occupations  in 
which  the  raw  material  undergoes  a  slight  modification, 
must  give,  according  to  the  capital  employed,  a  less  propor- 
tion of  the  returns  to  labor,  than  those  manufactures  in 
which  the  final  value  is  due,  less  to  material,  and  more  to 
labor.  A  community,  therefore,  whose  products  are  rude 
give  less  employment  to  labor  than  one  with  the  same  cap- 
ital whose  commodities  are  highly  wrought  and  elaborate. 
The  time  for  which  capital  is  advanced  is  still  more  impor- 
tant. If  six  per  cent,  is  its  yearly  profits,  and  the  full 
returns  are  realized  every  three  months,  less  than  one  and 
one-half  per  cent,  is  to  be  deducted  for  the  use  of  capital, 
the  remainder  going  to  labor.  If  the  returns  are  realized 
in  two  years,  more  than  twelve  per  cent,  must  be  deducted, 
and,  what  is  much  more  important,  capital  will  pass  into 
the  wages-fund  eight  times  in  the  one  case,  while  passing 
in  but  once,  in  the  other,  and  considerably  more  than  eight 
times  as  many  laborers  could  be  employed  by  an  invest- 
ment in  one  direction,  than  by  an  equal  investment  in  the 
other. 


WAGES.  183 

We  gather  up  this  discussion  in  the  following  propo- 
sitions : 

The  rate  of  wages  depends  on  the  amount  of  the  wages-fund,  as  com- 
pared with  the  number  of  laborers. 

The  wages-fund  depends ;  first,  on  the  productiveness  of  labor  ;  sec- 
ondly, on  the  ratio  of  division  between  ivages  and  profits ;  or,  more 
concisely,  on  the  rate  per  cent. 

The  division  between  wages  and  profits,  at  any  given  time  and  place, 
depends  on  the  ratio  which  the  demand  for  labor,  arising  from  capital, 
bears  to  the  labor  there  present. 

This  ratio  depends  on  the  previous  conduct  of  laborers  and  of  capital- 
ists, and  on  the  method  in  which,  and  time  for  which,  capital  is 
invested. 

The  condition  of  the  laborer,  as  determined  by  his  own  conduct,  is  de- 
pendent; first,  on  his  intelligence  widening  the  field  of  competition  ; 
secondly,  his  prudence  lessening  the  number  of  those  entering  upon 
it :  as  determined  by  the  conduct  of  the  capitalist,  is  dependent  on 
the  strength  of  the  motives  presented  to  him  for  abstinence,  and  on 
his  methods  of  expenditure. 

Laborers  act  on  wages  to  reduce  them  through  a  competition  for  employ- 
ment ;  capitalists,  to  raise  them  through  a  competition  for  laborers. 

§  8.  From  this  discussion  it  will  be  seen,  that,  as  far  as 
capital  is  concerned,  the  condition  of  the  laborer  is  the  best, 
when  it  presents  a  demand  for  labor,  taking  up  with  avidity 
all  that  is  in  the  market;  and  that  the  condition  of  the 
laborer  is  improving,  when  the  ratio  of  capital  to  labor  is 
increasing.  In  proportion  as  capital  lends  its  full  aid  to 
production,  and  the  laboror  is  so  situated  as  to  secure  a 


184  POLITICAL   ECONOMY. 

large  share  of  the  common  fund,  will  in  this  respect  be  his 
utilities.  But  though  a  small  rate  of  profits  may  show  a 
favorable  ratio  of  capital  to  labor  and  high  wages,  it  by  no 
means  necessarily  shows  it.  Though  wages  and  profits 
cannot  be  both,  relatively  to  each  other,  high  or  low,  they 
may  both  be  absolutely  high  or  low.  The  amount  of 
wages  is  not  nearly  so  dependent  on  low  profits  as  on  a 
high  state  of  productiveness.  Capitalist  and  laborer  secure 
their  largest  returns  by  seeking  their  common  interests,  by- 
adding  to  the  powers  and  resources  of  production,  far  better 
than  by  struggling  with  each  other  in  the  division  of  scanty 
products.  One,  two,  or  ten  per  cent,  added  to  profits  takes 
but  a  small  fraction  from  wages ;  a  single  invention  may, 
in  a  very  important  commodity,  treble  the  products  falling 
to  the  laborer.  Active  and  skilful  production  is  usually 
accompanied  both  with  high  profits  and  high  wages,  and 
wise  and  liberal  action,  uniting  the  two  classes  of  pro- 
ducers, is  far  more  powerful  in  securing  the  interest  of 
each,  than  any  possible  contention  and  mutual  plunder  can 
be.  The  growth  of  the  common  fund  is  the  leading  inter- 
est of  both,  and  this  demands  a  cheerful  concurrence  of 
effort.  The  common  fund  may  be  increased  tenfold ;  all 
enlargement  of  particular  portions,  without  such  common 
increase,  is  comparatively  a  pitiful  matter.  That  intelli- 
gence, then,  on  the  part  of  the  laborers  and  capitalists  by 
which  production  is  quickened,  is  more  important,  as  decid- 
ing the  condition  of  either  class,  than  the  causes  which 
determine  its  relative  portion  of  returns. 

When  we  take  in  the  additional   consideration  of  the 
price  of  food,  we  find,  that,  though  labor  and  capital  ::e 


WAGES.  185 

furnishing  each  other  every  assistance,  this  is  not  sufficient 
to  secure  the  welfare  of  the  laborer.  High  productiveness 
in  all  other  directions  may  be  compensated  by  the  high 
price  of  food,  and  the  increased  difficulty  of  obtaining  this 
gives,  as  we  have  seen,  an  elastic  though  impassable  bar- 
rier to  both  labor  and  capital.  The  absolute  increase  of 
both  wages  and  profits,  with  growing  skill,  finds  a  partial 
compensation  in  the  enhanced  price  of  agricultural  pro- 
ducts ;  rent  alone  goes  on  steadily  to  augment  with  every 
advance  of  population.  The  land-holder  obtains  a  larger 
and  larger  portion  of  agricultural  products,  and  this  portion 
has  also  an  increasing  ability  to  command  all  other  com- 
modities, both,  from  the  advanced  price  of  food,  and  the 
decreased  price  of  manufactured  articles. 

In  a  community,  then,  which  is  to  be  broadly  and  pro- 
tractedly prosperous  —  we  refer  to  a  community  complete 
within  itself,  relying  on  its  own  resources  —  agricultural 
production  must  be  kept  in  the  advance.  A  thorough  and 
renovating  culture,  aided  by  every  mechanical  appliance, 
and  giving  more  and  more  power  to  the  soil,  must  stand  fore- 
most among  practical  interests  and  speculations.  Nor  is  this 
sufficient.  Population  must  be  steadily  kept  in  the  rear  of 
such  a  culture.  Here  we  are  again  thrown  back  on  the  in- 
telligence of  the  laborer.  Agriculture  is  almost  wholly  in 
the  hands  of  the  working  men,  of  the  working  classes  ;  and, 
if  it  is  to  advance  generally,  it  must  be  through  their  intel- 
ligent efforts,  and,  certainly,  nothing  but  the  wisdom  and 
prudence  of  the  masses  themselves  can  relieve  the  several 
rewards  of  production  from  the  constant  pressure  of  pop- 
ulation.    Numbers,  slightly  in  advance  of  the  existing  state 

16* 


186  POLITICAL   ECONOMY. 

of  production,  must  occasion  constant  friction,  expending 
itself  on  human  comfort  and  human  life.  Numbers,  just 
in  the  rear  of  production,  may  look  to  a  pleasurable,  and 
safe,  and  indefinite  increase.  Much  play  has  been  given 
to  the  social  machine,  yet,  there  are  severe  remedies  of 
disease  and  famine  which  render  a  broad  departure  from 
the  law  of  prudence  and  industry  impossible.  Vast 
masses  of  ignorance  are  perpetually  scourged  by  misery, 
and  the  only  condition  on  which  numbers  can  ever  be 
granted  is  a  true  intelligence  at  once  virtuous  and  indus- 
trious. 

$  9.  We  have  now  to  consider  the  effect  of  machinery 
on  wages.  Labor-saving  machinery,  as  it  takes  the  place 
of  laborers,  might  seem,  at  first  sight,  to  come  into  compe- 
tition with  them,  and  thus  to  reduce  their  wages.  This 
would  be  the  case,  were  prices  to  remain  the  same  after, 
as  before,  the  introduction  of  such  machinery.  But  as  the 
cost  of  production  determines  the  exchange  value  of  com- 
modities, no  sooner  is  that  cost  diminished,  than  there 
begins  to  be  a  corresponding  diminution  of  the  price  of  the 
commodity,  and,  as  the  result  of  this  diminished  price,  a 
largely  increased  demand.  This  demand  calls  for  an 
equally  enlarged  production,  and,  as  no  machinery  entirely 
dispenses  with  human  effort,  there  is  again  a  fresh  demand 
for  laborers.  Though  it  might  be  difficult  to  anticipate 
with  certainty,  how  this  new  demand,  occasioned  by  ma- 
chinery, would  compare  with  the  old  demand,  dispensed 
with  by  machinery,  in  practice,  it  has  been  found  to  be 
much  the  larger,  and  that  invention  makes  way  for,  rather 


WAGES.  187 

than  takes  the  place  of  labor.  Rapid  and  sweeping,  as 
have  been  the  inventions  which  have  marked  some  manu- 
factures, as  those  of  cotton  and  woollen  goods,  there  has 
yet  been  in  each  a  constantly  increasing  demand  for  labor. 
The  circle  of  consumers  increases  in  a  geometrical  ratio, 
as  the  price  of  the  article  consumed  diminishes.  The 
number  of  those  who  have  a  yearly  revenue  of  ten  thou- 
sand dollars  or  upward  is  small ;  of  those  who  have  a  rev- 
enue of  one  thousand  dollars,  very  much  larger;  and  those 
who  have  a  revenue  from  two  hundred  to  five  hundred 
dollars  constitute  a  large  part  of  the  community.  A  price, 
which  places  a  commodity  within  the  reach  of  the  first 
class  only,  brings  but  few  customers  ;  when  the  price  falls 
to  the  means  of  the  second  class,  the  demand  is  greatly  in- 
creased ;  and  when,  to  those  of  the  third  class,  it  becomes 
universal.  Thus  it  is,  that  machinery,  dividing  the  price 
by  one  number,  multiplies  the. sales  by  a  much  larger 
number. 

The  laborer,  not  only  does  not  find  the  demand  for  his 
services  diminished  by  machinery,  but  that,  with  the  same 
wages,  he  can  command  a  larger  supply  of  the  products, 
into  whose  production  this  cheaper  element  has  entered ; 
that  his  utilities,  in  common  with  those  of  others,  have 
been  cheapened  by  the  general  introduction  of  machinery ; 
and  that  capitalists,  having  provided  for  their  enjoyments 
at  a  cheaper  rate,  have  a  larger  remainder  to  expend  in 
production,  and  thus  in  wages. 

As  the  changes  occasioned  in  the  condition  of  the 
laborer  by  machinery,  demand  time  to  be  fairly  inaugurated, 
and  for  the  compensation  to  be  fully  realized,  if  it  were  to 


188  POLITICAL   ECONOMY. 

be  introduced  at  once  into  all  departments,  it  might  occa- 
sion serious  though  temporary  evils.  But  against  any  such 
results,  we  are  protected  both  by  the  slowness  of  in- 
vention, and  the  labor  involved  in  the  construction  of  ma- 
chinery. In  practice,  this  agent  is  introduced  so  gradully, 
as  to  occasion  but  transient  and  trifling  disturbance.  La- 
borers are  not  left  without  employment,  or  compelled 
disadvantageously  to  change  their  employment,  nor  is 
such  an  amount  of  labor  drawn  at  any  one  time  into  the 
construction  of  machinery,  as,  even  for  the  current  year, 
to  diminish  the  gross  sum  of  immediately  useful  commod- 
ities, and  hence  the  consumption  of  the  laborer. 

That  machinery,  which  is  strictly  labor-saving,  and  is  em- 
ployed in  agriculture,  may  tend  to  dispense  with  labor,  and 
under  some  circumstances,  to  depress  wages.  An  improved 
plough  does  not  so  much  relieve  labor  as  make  it  more  effi- 
cient;  but  a  mower,  a  threshing  machine,  a  horse-rake, 
without  increasing  the  amount  of  produce,  render  less  labor 
requisite  in  securing  it,  and  substitute  the  exertion  of  ani- 
mals for  that  of  man.  Such  machinery  will  not  usually 
have  its  full  effect  on  price,  since  the  most  difficult  tillage, 
which  we  have  seen  regulates  price,  is  generally  less  as- 
sisted by  them,  than  the  smooth  tillage  of  rich,  alluvial 
soils.  But  even  where  price  is  reduced  to  the  full  extent 
of  the  improvement,  the  effect  is  not  wholly  similar  to  that 
resulting  from  a  corresponding  reduction  in  manufactured 
articles.  These  are  mostly  capable  of  indefinite  consump- 
tion, of  enlarging  enjoyment,  in  a  great  variety  of  ways, 
any  reduction  of  cost,  therefore,  opens  up  a  new  and  larger 
field  for  sales  than  that  before  occupied.     Food,  on  the 


WAGES.  189 

other  hand,  with  a  given  population,  is  sought  only  in  given 
quantities,  and  though  wastefulness  and  luxury  may  make 
some,  they  cannot  make  a  large  difference  in  the  amount 
used;  hence,  on  any  reduction  in  the  price  of  food,  the 
market  is  not  proportionately  enlarged ;  and,  there  does 
not  spring  up  an  increased,  but  there  remains  the  dimin- 
ished, demand  for  labor  in  this  department  of  production. 
Also  such  a  reduction  in  the  cost  of  food  would  tend  to 
quicken  population  and  multiply  laborers ;  though  this 
might  be  counteracted,  in  part,  by  the  difficulty  of  obtain- 
ing employment  now  pointed  out.  From  these  causes, 
it  might  happen  that  labor,  for  a  considerable  period, 
might  be  thrown  entirely  out  of  agriculture  by  the  intro- 
duction of  machinery,  and  left  to  seek  employment  in 
other  directions.  This  would  be  a  proportionate  gain,  if 
there  was  everywhere  a  brisk  demand  for  laborers;  if 
those  so  relieved  could  be  immediately  taken  up  and  pro- 
ductively employed;  but  if  there  was  no  such  demand, 
it  would  depress  the  working  class  by  a  reduction  of 
wages,  and  correspondingly  enhance  profits. 

It  also  might  occur,  in  extensive  tracts  owned  by  single 
individuals,  that  a  large  and  loose  culture,  by  means  of 
machinery  and  cattle,  could  be  made  more  immediately 
profitable  to  the  holder  than  a  more  laborious  and  personal 
husbandry;  but  this  culture,  in  its  application,  would  ex- 
clude many  laboring  families,  who  had  previously  secured 
their  own  subsistence  and  some  rent  for  their  landlord. 

These  considerations  do  not  deserve  the  mention,  as  in 
any  way  counterbalancing  the  great  and  general  good 
wrought  by  machinery ;  and,  in  our  own  country  at  least, 


190  POLITICAL   ECONOMY. 

there  may  not  have  been  a  single  instance  in  which  they 
have  occasioned  serious  individual  suffering.  Laborers 
owe  as  much  to  the  cheap  and  enlarged  production  which 
belongs  to  machinery  as  any  class,  and,  whatever  might- 
be  the  nominal  price  of  labor,  —  and  this  would  probably 
be  lower  than  at  present,  —  those  utilities  which  consti- 
tute real  wages  would  be  reduced  many  fold  by  the  setting 
aside  of  labor-saving  machinery. 


Library 

CHAPTER   IV. 

VARIATION  OF  WAGES  IN  DIFFERENT  EMPLOYMENTS. 

$  1.  This  subject  has  been  so  fully  and  successfully 
treated  by  Adam  Smith,  that  it  has  become  the  established 
custom  of  his  successors  to  draw  largely  upon  his  pages. 

Setting  aside  those  differences  which  arise  from  the 
arbitraiy  restrictions  of  society,  we  have,  as  sources  of  the 
variety  of  wages,  "  certain  circumstances  in  the  employ- 
ments themselves,  which  either  really,  or  at  least  in  the 
imaginations  of  men,  make  up  for  a  small  pecuniary  gain 
in  some,  and  counterbalance  a  great  one  in  others."  These 
circumstances  he  considers  to  be  —  "first,  the  agreeable- 
ness  or  disagreeableness  of  the  employments  themselves. 
Secondly,  the  easiness  and  cheapness,  or  the  difficulty  and 
expense  of  learning  them.  Thirdly,  the  constancy  or  incon- 
stancy of  employment  in  them.  Fourthly,  the  small  or  great 
trust  which  must  be  reposed  in  those  who  exercise  them ; 
and  fifthly,  the  probability  or  improbability  of  success  in 
them." 

The  first  cause  of  difference  is  the  agreeableness  or 
disagreeableness  of  the  occupation.  All  labor  is  a  sacri- 
fice, at  least  in  part,  of  ease  and  inclination,  and  it  is  for 
this  sacrifice  that  compensation  is  sought.  But  it  is  by  no 
means  equal  in  all  employments.    Some  cross  the  ordinary 


192  POLITICAL   ECONOMY. 

inclinations  and  desires  of  men  in  a  much  larger  degree 
than  others,  and  though  the  natural  variety  of  tastes  may 
in  part,  it  does  not  wholly,  compensate  this  intrinsic  differ- 
ence in  the  agreeableness  of  the  various  kinds  of  labor. 
This  variety  inevitably  shows  itself  in  a  corresponding 
variety  of  wages,  since  the  most  agreeable  occupation 
feels  most  severely  the  pressure  of  numbers,  reducing 
its  compensation ;  and,  the  least  agreeable,  least  severely, 
leaving  its  wages  at  the  maximum.  Among  the  things 
constituting  agreeableness  or  disagreeableness  in  labor  are 
its  ease  and  severity.  The  amount  of  physical  strength 
put  forth  in  the  same  time,  at  different  kinds  of  work,  is 
very  different,  and,  other  things  equal,  the  less  exertion  is 
preferred  to  the  greater.  A  second  consideration  is  the 
wholesomeness  and  unwholesomeness  of  labor.  The 
making  and  mixing  of  paints,  polishing  steel,  and  night 
work,  are  injurious,  and,  so  far  as  the  injury  is  understood, 
and  no  protection  is  afforded,  there  is  a  reluctance  to  enter 
on  these  duties,  and  a  consequent  rise  of  price.  Another 
consideration  is  the  cleanliness  of  labor  or  want  thereof. 
Most  persons  prefer  a  degree  of  personal  neatness,  which 
does  not  render  them  obnoxious  to  the  senses,  and  are  not 
willing  to  forego  it  without  corresponding  compensation. 
The  worker  in  iron  usually  obtains  higher  wages  than  the 
worker  in  wood;  the  one  must  be  habitually  dirty,  the 
other  may  be  habitually  clean.  The  confinement  or  lib- 
erty which  are  incident  to  labor  will  also  affect  its  price. 
A  man  will  hunt  for  low  wages,  and  will  labor  on  a  farm 
for  less  wages  than  he  will  work  in  a  factory.  Public 
opinion  also  affects  labor.     The  butcher  generally  receives 


VARIATION   OF   WAGES   IN   EMPLOYMENTS.  193 

larger  returns  than  other  laborers,  and  the  maker  and 
seller  of  ardent  spirits  often  adds  to  the  profits  and  wages 
of  labor  the  price  of  public  indignation  and  a  bartered 
conscience.  The  danger  which  attaches  to  an  occupation 
is  sometimes  placed  among  the  disagreeable  circumstances 
which  enhance  price.  But  this  must  largely  depend  on 
the  nature  of  the  danger.  Much  danger  invites  the  adven- 
turous spirit.  The  recruiting  drum  is  often  followed  at 
very  low  wages,  and  the  sailor  receives  perhaps  no  addi- 
tional pay  for  the  additional  risk  of  his  employment. 

$  2.  These  various  circumstances,  giving  character  to  an 
occupation,  are  modified  by  the  other  considerations  which 
remain  to  be  spoken  of,  and,  unless  existing  with  decided 
force,  produce  but  slight  and  imperceptible  effects.  These 
considerations  have  the  most  force  in  connection  with 
manual  labor.  Intellectual  labor  is,  in  all  its  forms,  agree- 
able, and  the  human  mind,  in  its  tastes  and  tendencies, 
furnishes  a  variety  equal  to  that  existing  in  the  demand. 
The  difference  in  compensation  here  is  mainly  due  to 
other  principles.  Labor,  when  employed  in  connection 
with  capital,  is  more  affected  by  public  opinion  than  by 
any  of  the  other  circumstances  specified.  The  slave 
trade,  the  liquor  business,  a  gambling  house,  and  a  lottery, 
must  all  afford  more  than  the  ordinary  returns. 

The  second  of  the  things  specified,  as  causing  a  variety 
in  wages,  is  the  facility  with  which  a  business  is  learned. 
To  this  is  attributable  the  difference  existing  between 
skilled  and  unskilled  labor;  between  the  wages  of  the 
day  laborer  and  those  of  the  artisan ;    and  between  the 

17 


194  POLITICAL   ECONOMY. 

wages  of  these  and  those  of  the  professional  man.  The 
justness  of  such  a  difference  is  seen  in  the  time  employed 
and  expense  incurred  preliminary  to  a  trade  or  profession. 
This  is  an  investment  on  which  a  return  is  expected,  and 
is  made  in  higher  wages.  The  method  in  which  these 
additional  returns,  due  to  the  expense  and  delay  of  prepa- 
ration, are  secured,  is  by  the  reduction  of  numbers  which 
these  obstacles  at  the  entrance  occasion,  and  the  conse- 
quent weakness  of  competition.  We  shall,  however,  here 
see  the  strong  effect  of  custom  in  sustaining  prices ;  the 
evident  justness  of  the  artisan's  claim  for  a  higher  remu- 
neration than  that  which  belongs  to  unskilled  labor  also 
strengthens  him  in  making  the  demand,  and  aids  him  in 
securing  a  concession.  The  practical  extent,  however,  to 
which  even  a  just  claim  can  be  realized,  depends  on  the 
ability  of  him  who  makes  it  to  enforce  it,  and  this  ability 
is  present  only  where  the  number  of  workmen  does  not 
exceed  the  demand  for  their  kind  of  labor. 

In  many  of  the  trades,  the  additional  compensation  is 
somewhat  greater  than  the  loss  of  time  in  learning  the 
trade  would  require;  and  this,  especially  in  those  trades 
least  readily  accessible,  either  through  the  time  required 
for  acquisition,  or  the  fewness  of  the  opportunities  pre- 
sented. The  artisan  oftentimes  enjoys  a  natural  monopoly, 
enhancing  his  wages  beyond  their  due  proportion.  Trades, 
if  acquired  at  all,  must  usually  be  acquired  early  in  life, 
before  the  workman  is  responsible  for  the  maintenance  of 
a  family.  It  is  generally,  not  the  foresight  of  the  child, 
but  of  the  parent,  that  apprentices  him  to  a  trade,  and,  as 
this  is  attended  with  a  lo.ss  of  time  due  to  the  parent,  and 


VARIATION   OP   WAGES   IN"   EMPLOYMENTS.  195 

often  with  other  expenses,  it  is  natural  that  day  laborers, 
who  most  require  the  aid  of  their  children,  and  are  the 
most  improvident  class,  should  not  often  be  willing  to 
make  this  sacrifice.  Later  in  life,  when  the  responsibili- 
ties of  a  family  have  been  incurred,  the  child  can  no 
longer  redeem  the  omission  of  the  parent;  thus,  superior 
advantages  may  belong  to  a  trade,  and  access  be  free  to 
all,  without  having  these  advantages  wholly  destroyed  by 
the  competition  of  numbers.  Indeed,  if  the  additional 
wages  of  an  artisan  were  just  equal  to  his  loss  of  time, 
there  would  be  no  inducement  for  any  to  learn  a  trade.  It 
would  be  necessary  to  accept  a  present  sacrifice  for  a 
future  good,  and  that  good  no  more  than  sufficient  to  com- 
pensate the  present  loss.  Interest  is  certainly  against 
such  a  measure,  though  taste  might  sometime  prompt  to 
it.  Improvident  as  man  is,  a  present  real  sacrifice  will 
effectually  bar  the  way  of  approach  to  a  considerably 
greater  future  good. 

The  respect  which  attaches  to  an  artisan  above  a  day 
laborer  somewhat  strengthens  the  inducements  in  favor  of 
a  trade,  though  this  respect  is  itself  largely  dependent  on 
the  increased  remuneration.  Peculiar  skill  in  all  trades 
enhances,  and  in  some  greatly  enhances,  wages,  as  by  a 
monopoly  price. 

$  3.  In  the  trades,  a  loss  of  time  is  the  principle  prelimi- 
nary expense  ;  in  the  professions,  there  is,  in  addition  to 
this,  a  large  expenditure.  The  apprentice  is  boarded  by 
the  master;  the  student  must  board  himself.  We  might 
expect,  therefore,  that  professional  wages  would  be  higher 


196  POLITICAL   ECONOMY. 

than  any  other.  But  a  variety  of  considerations  come  in 
to  modify  this  expectation,  and  different  countries  and 
times  have  presented  great  differences  in  the  returns  of 
educated  labor.  Adam  Smith  thought  them,  in  his  time, 
much  below  their  just  amount,  while  later  writers  have 
judged  their  own  times  differently.  Professional  returns 
are  often  very  much  higher  than,  in  some  instances,  would 
belong  to  the  sacrifice  incurred.  If  we  were,  in  America, 
to  take  only  those  who  are  properly  and  thoroughly  physi- 
cians and  lawyers,  educated  to  their  professions,  we  should 
doubtless  find  the  average  compensation  much  more  than 
sufficient,  "within  a  reasonable  time,"  to  replace  the  ex- 
penses of  education,  and  the  loss  of  time  estimated  in 
unskilled  labor.  In  the  ministry,  other  considerations  than 
those  of  Political  Economy  govern  price.  The  minister 
frequently  obtains  his  education  at  reduced  expense,  and 
is  expected  to  make,  and  oftentimes  does  make  a  pecun- 
iary sacrifice  in  entering  on  his  professional  duties.  The 
large,  additional  wages  which  fall  to  skilful  professional 
labor  are  the  price  due  to  a  natural  monopoly.  The  num- 
ber who  can,  and  are  willing,  to  secure  the  education 
which  prepares  them  for  competition  is  small,  and  the 
number  who  possess  the  natural  elements  of  success  still 
smaller;  hence,  nowhere  have  we  a  natural  monopoly 
more  strict,  than  in  the  highest  efforts  of  professional 
skill. 

The  considerations  which  counterbalance  the  sacrifice 
which  precedes  educated  labor,  are,  as  they  should  be, 
great,  and,  though  they  may  crowd  some  professions  with 
worthless  members,  we  find  for  this  a  large  compensation 


VARIATION    OP   WAGES   IN   EMPLOYMENTS.  197 

in  the  talent  and  intelligence  which  they  place  at  the  dis- 
posal of  a  community.  Knowledge  id  itself  constitutes 
a  reward,  and  the  student  can  hardly  demand  a  full  pecun- 
iary return  for  the  time  spent  in  its  acquisition.  Respecta- 
bility and  station  always  attend  on  its  possession ;  and,  on 
its  eminent  possession,  renown.  Most  enlightened  com- 
munities have  provided  institutions,  for  the  instruction  of 
its  youth,  more  or  less  eleemosynary.  These  considera- 
tions all  enter  in  to  invite  educated  labor,  and  may,  in 
some  places  and  for  some  persons,  unduly  reduce  its  com- 
pensation. 

Custom  and  law  help  to  decide  the  fees  of  both  physi- 
cians and  lawyers,  while  competition  determines  the  num- 
ber of  those  fees  which  shall  be  obtained.  All  salaries 
bestowed  upon  educated  labor,  either  by  government  or 
private  corporations,  transcend,  rather  than  fall  below  the 
returns  due  to  the  investments  of  education. 

$  4.  The  third  cause  of  variety  in  wages  is  the  con- 
stancy of  employment.  The  amount  of  wages  for  the 
year  is  that  in  which  the  laborer  is  principally  interested, 
and  if  labor  is  of  such  a  character  as  to  be  necessarily 
intermittent,  its  compensation,  for  the  time  being,  must  be 
proportionately  great.  In  a  cold  climate,  the  mason  can  do 
but  little  in  the  winter ;  hence  his  summer  wages  are 
more  than  those  of  kindred  trades.  The  porter  is  sure  of 
but  few  jobs,  and  must  charge  proportionately  for  each. 
There  are,  however,  two  modifying  considerations.  Men 
enjoy  leisure,  and  where  this  is  afforded,  are  willing  to 
receive  a  less  compensation.     The  time  redeemed  from  a 

17* 


198  POLITICAL   ECONOMY. 

regular  occupation  may  be  made  to  furnish  some  returns 
in  an  incidental  business.  This  consideration  of  con- 
stancy in  employment  is  as  applicable  to  capital  as  to 
labor.  A  hotel,  open  for  the  summer  months,  affords  a 
good  illustration. 

A  fourth  consideration,  occasioning  variety  in  wages,  is 
the  trust  demanded.  Men  do  not  readily  commit  great 
pecuniary  interests  to  another.  The  number  of  those  who 
inspire  the  requisite  trust,  moral  and  intellectual,  are  few ; 
and  there  is  a  corresponding  demand  for  their  services, 
and  a  willingness  to  pay  the  wages  that  command  the 
desired  qualifications.  Large  salaries  are  also  thought 
to  lessen  the  inducements  to  dishonesty.  The  judge 
should  be  well  paid ;  the  engraver  of  bank  bills  should  be 
well  paid ;  all  important  trusts  should  be  guarded  by  integ- 
rity, the  high  salary  commanded,  and  the  temptation  it  re- 
moves. 

A  final  consideration  advanced  by  Adam  Smith,  in  this 
connection,  is  the  probability  of  success.  This  influences 
capital  more  than  labor,  but  is  not  without  its  effect  even 
on  the  last.  A  skill,  adequate  for  most  manual  labor,  can 
be  acquired  by  all,  in  the  period  of  time  allotted  for  that 
purpose ;  but,  in  some  kinds  of  effort,  entire  success  is  so 
largely  dependent  on  peculiar  original  gifts,  as  to  dissuade 
many  from  entering  upon  them.  The  engraver  and  archi- 
tect and  machinist  do  not,  as  the  result  of  effort  merely, 
meet  with  equal  and  entire  success,  and  the  few  who  do 
succeed  secure  a  proportionate  reward.  Here  may  be 
referred  the  reward  of  unusual  talents,  in  all  directions. 

In  different  employments  also,  the  probability  of  secur- 


VARIATION   OF   WAGES   IN    EMPLOYMENTS.  199 

ing  work  is  unequal,  and,  where  labor  employs  itself,  in 
connection  with  its  own  capital,  the  chances  of  realizing 
an  adequate  reward  are  still  more  various.  The  gold 
digger  may  lose  all  the  labor  that  he  expends,  and,  there- 
fore, in  the  high  wages  which  he  sometimes  realizes,  only 
finds  a  compensation  for  the  risk  of  failure.  He  who  takes 
a  large  job  by  contract  expects  more  than  ordinary  wages, 
as  a  return  for  the  danger  of  loss,  though  this  loss  may 
never,  in  any  instance,  have  been  suffered.  No  one 
would  accept  the  anxiety  of  such  contracts,  if  there  was 
no  opportunity  open  to  him  of  obtaining  more  than  ordi- 
nary wages.  Men  often  have,  however,  such  an  over- 
weening confidence  in  their  own  ability  and  good  fortune, 
and  judge  their  chances  of  success  so  favorably,  as  to 
counteract  the  influence  which  a  safe  estimate  of  probabili- 
ties would  exert.  Especially  is  this  true,  when  the  wealth 
1o  be  gained  comes  suddenly  and  in  large  amounts.  The 
imagination  is  stimulated,  and,  overlooking  or  underrating 
the  obstacles,  the  individual  promises  himself  immediate 
success,  and  this  too,  when,  in  the  case  of  another,  his 
judgment  would  be  sufficiently  cool  and  accurate.  Lot- 
tery tickets  find  no  lack  of  purchasers,  though  it  is  known 
that  the  chance  of  a  prize  is  of  less  value  than  the  sum 
paid  for  it.  Nor  are  those  who  have  abundant  funds  more 
likely  to  make  the  venture  than  those  whose  every  dollar 
is  needed.  As  the  result  of  a  gambling  love  of  hazard, 
and  a  confidence  in  our  own  good  fortune,  it  usually  hap- 
pens that,  in  employments  involving  peculiar  risk,  and,  in 
individual  cases,  making  large  returns,  if  the  aggregate 
reward  be  compared  with  the  whole  sum  of  labor,  the 


200  POLITICAL  ECONOMY. 

individual  portion  will  be  found  to  fall  below  ordinary 
wages.  Mining  impoverishes  labor  as  often  as  it  extrava- 
gantly rewards  it.  Where  the  difficulties  are  well  under- 
stood, and  the  imagination  less  appealed  to,  this  class  of 
occupations*  secures  wages  in  some  degree  proportioned  to 
the  risk. 

Though  the  five  now  enumerated  are  the  leading,  there 
are  some  additional  considerations,  occasioning  a  variety 
in  the  reward  of  labor.  When  commodities  are  brought 
into  competition  with  similar  commodities,  made  by  those 
who  are  not  dependent,  or  not  chiefly  dependent,  on  this 
manufacture  for  their  subsistence  and  enjoyments,  they  are 
liable  to  fall  in  price  below  the  point  at  which  they  can 
afford  the  ordinary  compensation  to  labor.  A  state  prison 
may  glut  a  limited  market  with  articles  manufactured  by 
the  criminals,  and  depress  the  wages  of  those  who  had 
before  occupied  it  with  their  wares.  Those  who,  with  a 
regular  employment,  occupy  their  evenings  or  leisure  hours 
with  an  incidental  manufacture,  may  be  able  to  afford 
these  additional  products  at  a  price  below  that  which  can 
be  received  by  those  who  are  solely  dependent  on  it  for 
their  subsistence.  In  all  cases  of  this  kind,  however,  if 
the  secondary  occupation  becomes  permanent,  the  equilib- 
rium in  prices  will  be  restored  by  the  removal  of  labor 
from  one  department  to  another. 

$  5.  The  wages  of  women,  in  most  employments,  are 
much  inferior  to  those  of  men,  for  precisely  similar  ser- 
vices. For  this,  several  reasons  may  be  given.  Usage 
has  greatly  restricted  the  number  of  occupations  in  which 


VARIATION    OF   WAGES    IN    EMPLOYMENTS.  201 

women  may  engage ;  hence,  in  these  few,  the  competi- 
tion is  proportionately  intense.  "Women  frequently  are 
not  solely  dependent  on  their  wages  for  support,  or,  if 
themselves  dependent,  have  none  dependent  on  them; 
hence,  many,  by  being  able  to  work  for  less  than  a  sup- 
porting remuneration,  have  brought  down  the  wages  of 
all.  Both  of  these  considerations  are  not  able  fully  to 
account  for  the  marked  difference  which  almost  every- 
where exists  in  the  recompense  of  the  two  kinds  of  labor. 
The  demand  for  female  servants  may  be  very  great,  and 
their  wages  not  approximate  those  of  hired  men,  for  whom 
the  demand,  at  the  same  time,  may  be  lax.  Teachers,  as 
a  class,  are  solely  dependent  on  their  salaries  for  support, 
and  yet,  for  the  same  labor,  the  female  usually  receives  a 
less  recompense  than  the  man.  Having  made  all  reason- 
able allowance  for  any  intrinsic  difference  there  may  be  in 
the  kind  of  service  rendered,  there  still  remains  a  resi- 
duum which  cannot  be  explained,  save  as  the  remnant  of 
a  barbarous  custom,  and  an  irrational  prejudice  in  favor  of 
men. 

In  this  discussion  on  the  inequality  of  wages,  we  have 
supposed  none  but  inherent  obstacles  to  exist,  interrupting 
the  transfer  of  labor  from  employment  to  employment. 
Additional  obstacles  may  exist  in  voluntary  associations, 
in  long  established  customs,  in  legal  restrictions. 

Wages  may  also  be  affected  in  any  trade,  by  a  combina- 
tion on  the  part  of  its  members,  and  a  self-enforced  re- 
striction as  to  the  number  of  apprentices  to  be  received. 
By  such  voluntary  associations,  competition  has  some- 
times been  so  reduced,  as  perceptibly  to  enhance  prices. 


202  POLITICAL   ECONOMY. 

Laborers  are  in  a  much  less  favorable  position  to  or- 
ganize effectual  combinations  for  the  increase  of  wages, 
than  are  capitalists  for  the  increase  of  profits.  Their 
numbers  are  greater,  they  are  less  known  to  each  other, 
and  their  immediate  necessities  are  much  more  impera- 
tive, rendering  any  long  rejection  of  employment  impossi- 
ble. Much  less  danger,  therefore,  is  to  be  apprehended 
from  any  union  on  the  part  of  workmen,  than  on  the  part 
of  capitalists;  and  voluntary  combinations,  for  the  pro- 
tection of  a  particular  trade,  have  only  existed  where 
the  numbers  and  improvidence  of  the  mass  of  the  people 
have  inundated  all  the  lower  ranks  with  misery,  and  made 
the  intelligence  of  the  few  unavailing  amid  the  folly  of 
the  many.  For  a  particular  trade  to  gird  itself  around  by 
voluntary  restrictions,  and  thus  make  the  prudence  of  the 
members  avail  for  their  own  profit,  seems  but  a  needful 
act  of  self-defence. 

Custom  and  legal  restrictions  may  be  the  most  prolific 
and  unfortunate  source  of  inequalities;  by  closing  up 
every  avenue  of  escape,  they  double  the  disasters  to 
which  any  department  of  action  is  liable,  and  enhance  a 
prosperity  already  sufficient.  The  natural  obstacles  which 
exist  to  the  transfer  of  labor  are  always  very  considerable ; 
the  present  advantages  of  skill  must  be  lost,  and  a  new 
trade  learned;  old  habits  broken  up,  and  new  risks  in- 
curred. Slight  and  transitory  inequalities  in  wages  are  not 
sufficient  to  secure  this  sacrifice ;  and  the  slow  and  reluc- 
tant manner  in  which  a  community  changes  its  occupa- 
tions, when  under  the  pressure  of  strong  forces,  shows 
that  this  point  has  been  sufficiently  guarded  by  nature.     A 


VARIATION    OF   WAGES   IN    EMPLOYMENTS.  20o 

supply  of  skilled  labor  cannot  be  afforded  at  once ;  there 
must  be  the  apprenticeship,  and  it  is  only  the  development 
of  a  real  and  abiding  force  which  can  materially  affect  the 
number  of  young  men  choosing  a  particular  calling.  Law 
and  custom  may  enter  in  to  increase  or  diminish  the  num- 
ber due  to  the  natural  demand;  but,  as  a  general  rule, 
they  must  act  blindly,  and,  so  far  as  they  supersede  the 
natural  law,  they  must  act  injuriously. 

That  community,  in  which  the  workmen  are  most  enter- 
prising and  intelligent,  has  in  it  the  most  versatility  and 
power,  and  is  the  least  automatic.  Here,  the  transfer  of 
labor  will  take  place  most  readily,  and  men  and  talent  will 
be  most  developed  by  the  exigencies  of  each  new  case. 
Immobility  in  this,  as  in  other  respects,  is  indicative  of 
decay  and  old  age.  Constant  and  easy  transfer  of  labor  is 
not  usually  consistent  with  the  development  of  the  highest 
mechanical  skill ;  hence,  in  new  communities,  where  the 
intensity  and  variety  of  the  demand  have  developed  great 
enterprise  and  mobility,  we  may  find  less  perfection  of 
workmanship  than  among  an  older  and  more  staid  people. 
Equality  of  wages  implies  a  free  transfer  of  labor  from 
occupation  to  occupation;  but  there  is  always,  according 
to  natural  character,  more  or  less  of  tenacity  in  the  associ- 
ations and  habits  of  men,  which,  enhanced  by  the  diffi- 
culty of  replacing  skill  in  the  old  department  with  skill  in 
the  new,  prevents  all  rapid  flow.  For  this  reason,  transi- 
tory causes  may  make  a  wide  difference  in  the  remunera- 
tion of  labor;  permanent  causes  alone  safely  affect  and 
correct  the  supply  of  laborers 

As  between  different  countries,  wages  may  vary,  owing 


204  POLITICAL  ECONOMY. 

to  the  difficulty  with  which  population  transfers  itself  from 
country  to  country.  Climate,  customs,  and  language,  afford 
so  formidable  a  barrier,  that  between  nations  radically  dis- 
tinct, few  overleap  it.  This  is  doubtless  well ;  each  nation 
is  left  to  work  out  for  itself  the  problem  of  social  thrift, 
and  the  intelligence  and  prudence  of  one  are  not  immedi- 
ately made  of  no  account  by  the  inundating  barbarity  and 
recklessness  of  another.  If  China  were  to  discharge  her 
laborers  bodily  on  any  civilized  nation  of  limited  resources, 
the  working  class  would  be  ruined.  The  obstacles  to 
transfer  are  so  great,  that  each  nation  is  made  accountable 
for  its  own  action  alone,  and,  in  most  countries,  wages  will 
be  primarily  determined  by  the  action  of  its  own  homo- 
geneous population.  A  crowded,  dependent,  and  oppressed 
country  may  sometimes,  through  the  action  of  this  princi- 
ple, avenge  itself  on  its  conquerors.  Irish  laborers  may 
crowd  and  surfeit  the  English  market. 

$  6.  We  shall  conclude  the  discussion  of  wages  by  point- 
ing out  the  effect  upon  them  of  a  direct  or  indirect  tax.  If 
those  commodities  are  taxed  which  are  consumed  by  the 
laborer,  or  a  direct  tax  is  levied  upon  his  income,  as  the 
burden  falls  in  common  on  all  laborers,  there  is  no  oppor- 
tunity to  escape  it  by  any  rise  in  prices.  If  the  whole,  or 
any  portion  of  it,  is  removed  from  the  laborer,  it  must  be 
at  the  expense  of  the  capitalist,  and  by  a  readjustment  of 
the  division  of  their  mutual  fund.  But  a  new  apportion- 
ment can  only  be  effected  by  a  change  in  one  of  the  ele- 
ments which  control  it.  If  laborers  are  to  have  more, 
there  must  be  either  a  decrease  in  their  numbers,  or  an 


VARIATION    OF   WAGES   IN   EMPLOYMENTS.  205 

increase,  in  reference  to  those  numbers,  of  capital.  In 
each  case,  it  must  be  the  result  of  their  own  prudence. 
If,  then,  the  laboring  class  is  pressed  below  its  wonted 
standard  of  comforts  by  taxation,  only  a  fresh  effort  of 
prudence  can  restore  them  to  their  lost  social  rank.  It  is 
plainly  just  that  labor  should  bear  a  portion  of  the  expense 
of  the  government  which  protects  it ;  but  when  that  gov- 
ernment has  forgotten  to  cherish  its  most  valuable* and 
dependent  agent,  that  agent  can  nevertheless  protect  it- 
self, and  throw  back  the  burden  on  capital,  by  rigorous 
self-control.  Indeed,  without  self-control,  the  laboring 
classes  will  become  the  pack-horse,  whose  capacious  pan- 
niers will  bear  the  whole  burden  of  misery. 

The  wages  of  skilled  and  educated  labor,  which  come 
in  liberal  salaries  and  large  incomes,  seem  a  very  appro- 
priate object  of  taxation.  The  agents  which  this  kind  of 
labor  employs,  being  immaterial,  are  not  open  to  taxation, 
and  hence,  owing  to  the  absence  of  those  means  by  which 
wealth  is  ordinarily  acquired,  a  large  revenue  derived  from 
educated  labor  may  exist  under  a  property  tax  merely, 
without  contributing  to  the  common  burden.  Farmers  and 
manufacturers  are  taxed  on  their  farms  and  buildings,  and 
the  instruments  by  which  their  income  is  realized ;  when 
these  instruments  cannot  be  reached,  it  is  sufficiently  just 
that  the  income  realized  should  take  their  place.  If  a 
mechanic,  with  buildings  pertaining  to  his  trade,  should 
pay  a  yearly  tax,  it  is  fit  that  a  lawyer,  with  a  net  revenue 
much  exceeding  his,  though  without  such  buildings,  should 
pay  a  corresponding  tax. 

18 


CHAPTER   V. 

PROFITS. 

$  1.  The  term  profits  is  used  in  popular  speech  with  a 
much  broader  signification  than  in  Political  Economy.  In 
the  first,  it  stands  for  the  whole  complex  return  that  recom- 
penses capital,  the  labor  of  its  superintendence,  and  the 
risks  that  pertain  to  its  employment.  In  the  last,  it  repre- 
sents but  one  of  these,  the  rate  per  cent,  which  expresses 
the  yearly  value  of  use  of  the  capital.  The  wages  of  the 
labor  of  superintendence  and  the  cost  of  insurance  are 
distinct  items.  This  rate  per  cent,  in  the  several  methods 
of  employing  capital,  will  be  very  nearly  equal.  If  it 
were  not  so,  capital  would  rapidly  transfer  itself  from  the 
least  to  the  most  profitable  employment,  till  the  equilib- 
rium of  profits  was  restored,  and  this  with  much  greater 
facility  than  in  the  case  of  labor.  Capital,  accumulated  in 
the  reservoirs  of  banking  institutions,  will  flow  out  in  any 
direction,  according  to  the  demand  of  labor ;  and  it  is  not 
necessary  that  the  same  labor  which  formerly  accompanied 
it  should  be  transferred  with  it  to  the  new  use.  Fluent  as 
water,  it  can  move  wherever  labor  has  occasion  for  it. 
With  some  exceptions,  therefore,  the  rate  of  profit  will 
everywhere  be  the  same. 


PROFITS.  207 

We  have  already  referred  to  the  effect  of  public  opinion 
on  profits,  as  being  the  same  with  that  on  labor. 

Having  restricted  the  rate  per  cent,  to  the  use  of  capital, 
and  shown  its  general  equality,  we  have  now  to  determine 
its  amount.  This  is  solely  dependent  on  the  principles 
which  we  have  shown  to  determine  the  division  between 
labor  and  capital.  The  productiveness  of  labor  does  not 
affect  the  rate  per  cent,  though  it  does  affect  the  amount 
of  capital  on  which  this  rate  per  cent,  is  given,  and  hence, 
the  portion  of  the  capitalist.  Aside  from  th.e  rent  entering 
into  the  material  employed,  capital  expends  itself  solely 
on  labor,  and  it  is  labor,  also,  —  that  labor  which  furnishes 
the  raw  produce,  under  the  greatest  disadvantages  of 
soil,  —  which,  without  reference  to  rent,  regulates  the  price 
of  the  material.  All  the  fixed  capital,  the  tools,  and  the 
buildings,  all  the  material  in  its  several  stages,  are  resolva- 
ble into  labor,  and  capital,  in  its  expenditure  upon  these, 
becomes  a  wages-fund.  If,  therefore,  the  products  of  labor 
are  doubled,  the  wages  of  labor  being  also  doubled,  and 
these  being  advanced  by  the  capitalist,  double  profits  still 
leave  him  with  the  same  rate  per  cent.  This  is  deter- 
mined, not  by  the  amount  of  the  products  divided,  but  by 
the  portion  of  those  products  falling  to  the  one  and  the 
other. 

That  in  which  the  capitalist  is  interested  is  the  cost  of 
labor,  or  wages  proper. 

That  we  may  definitely  determine  what  the  recompense 
of  labor  and  what  the  cost  of  labor  are,  —  what  the  posi- 
tions of  the  laborer  and  capitalist  respectively  are, — we 
must  know  the  efficiency  of  labor;  thus,  on  the  one  side, 


208  POLITICAL   ECONOMY. 

defining  its  amount;  we  must  know  the  products  of  a 
given  kind,  or  kinds,  in  which  it  finds  its  recompense,  and 
the  exchange  value  of  these  products ;  thus,  on  the  other 
side,  defining  its  cost.  The  amount  of  products  of  a  given 
exchange  value,  which  a  given  amount  of  labor  secures, 
being  known,  we  thence  determine,  in  each  state  of  pro- 
ductiveness, the  shares  falling  to  labor  and  capital,  and, 
through  these,  the  rate  per  cent.  Wages  and  profits,  as 
now  defined,  we  have  seen  to  depend  on  the  ratio  which 
the  labor  and  capital  seeking  employment  bear  to  each 
other ;  and  that  this  ralio  is  determined  by  the  previous 
conduct  of  laborers  and  capitalists. 

Contempt  will  deter  men  from  employing  capital,  and 
those  who  neglect  the  censure  will,  in  a  wicked  traffic, 
obtain  the  reward  of  sin.  An  appearance  of  inequality 
will  be  given  to  profits  by  the  great  variety  existing  in  the 
element  of  risk.  This  must  be  fairly  compensated  in  the 
returns  of  business,  since  men,  whatever  excitement  they 
may  find  in  personal  danger,  take  but  little  pleasure  in 
risking  money.  Insurance,  thus  varying  with  each  new 
employment,  will  give  to  the  aggregate  returns  a  seeming 
inequality.  Each  increase  of  risk,  finding  less  to  balance 
it  in  personal  confidence,  is  here  much  more  accurately 
measured  than  in  the  case  of  wages.  Profits  also  seem 
unequal,  from  the  different  degrees  in  which  the  wages  of 
superintendence  enter  into  them.  A  small  capital  is  rela- 
tively accompanied  with  much  more  of  this  kind  of  labor, 
than  a  large  one.  A  huckster,  with  his  apples,  may  realize 
a  return  of  several  hundred  per  cent.,  and  not  more  than 
pay  the  labor  expended;  a  wholesale  merchant  may  find 


PROFITS.  209 

the  wages  of  this  kind  of  labor  reduced  to  one-half  or 
one-fourth  per  cent,  on  the  capital  employed.  In  the  last 
case,  the  returns  are  almost  all  profits ;  in  the  first  case, 
almost  all  wages.  Twenty  per  cent.,  with  a  capital  of  ten 
thousand  dollars,  may  give  no  higher  profits  than  seven 
per  cent.,  with  a  capital  of  one  hundred  thousand  dollars. 
He  who  has  a  very  large  capital,  if  he  can  find  a  business 
that  will  absorb  it  all,  is  willing  to  accept  returns  relatively 
small,  since  the  superintendence  of  a  single  individual 
may  be  sufficient,  and  the  risk  is  uniform.  If  that  capital 
must  be  divided  into  twenty  or  thirty  parts,  that  it  may 
pass  into  the  retail  business,  —  the  labor  being  proportion- 
ately -multiplied,  a  greater  number  of  persons  to  be  trusted, 
and  the  risk  more  various,  —  there  must  be  a  large  increase 
of  returns  to  secure  the  same  profits  as  before.  A  real 
inequality  may  arise,  sometimes,  against  a  large  capital, 
from  the  difficulty  of  employing  it ;  sometimes  in  favor  of 
it,  from  its  commanding  new  and  profitable  openings,  not 
within  the  reach  of  a  smaller  one.  Among  capitalists  of  a 
limited  business,  combinations  affecting  profits  are  very 
possible. 

$  2.  Capital  is  in  itself  capable  of  indefinite  and  rapid 
increase ;  but  as,  in  the  later  stages  of  its  growth,  the  mo- 
tives for  its  acquisition  gradually  diminish,  there  comes,  or 
may  come,  a  time  in  which  it,  and  the  economic  interest 
nourished  by  it,  are  stationary.  In  the  most  favorable 
state  of  society,  in  the  truest  and  most  healthy  growth  of 
all  man's  interests,  there  is  a  point  at  which  economic 
forces  must  cease  to  occupy  that  prominent  position  which 

18* 


210  POLITICAL  ECONOMY. 

now  belongs  to  them,  and  to  be  the  leading  means  by 
which  the  race  is  borne  onward.  As  long  as  there  is 
progress  in  science,  there  will  be  the  unfolding  of  new 
powers,  and  new  applications  of  known  powers ;  there 
will  be  the  opening  of  new  directions  in  which  capital  can 
profitably  employ  itself;  and  economic  interests  can  never 
become  perfectly  stationary,  yet  the  rapidity  of  movement 
which  now  belongs  to  them,  when  a  hemisphere,  nay, 
almost  a  world,  is  yielding  its  virgin  forces  to  their  occupa- 
tion, will  be  greatly  reduced. 

The  limits  which  natural  laws  assign  to  a  single  nation, 
within  a  restricted  territory,  are  the  same  which  they 
assign  to  all  nations  within  the  larger  territory  of  the 
earth;  and,  though  the  movement  by  which  the  capacity 
of  our  common  inheritance  is  reached  is  far  more  hesitat- 
ing and  protracted  than  that  by  which  a  single  people  fill 
and  press  upon  their  boundaries,  yet  the  limitations  of  the 
one  are  the  same  with  those  of  the  other.  If  the  inhab- 
itants of  the  British  Isles,  who  are  now  sending  laborers 
and  capital  to  every  continent,  were  to  confine  their  opera- 
tions within  their  own  boundaries,  there  would  at  once  be 
a  great  retardation  in  the  acquisition  of  wealth,  and,  ulti- 
mately, an  almost  complete  suspension.  As  things  now 
are,  a  large  part  of  English  products  and  enjoyments 
would  be  taken  away  by  such  a  supposition,  since  the 
produce  and  raw  material  of  all  climates  contribute  to 
her  present  prosperity ;  but,  if  all  gifts  of  the  earth  were 
found  within  the  narrow  limits  of  these  isles,  and  no  loss 
of  commodities  inflicted  on  any  part  of  their  population  by 
such  a  restriction,  the  suspension  of  growth  in  her  mdus- 


PROFITS.  211 

trial  agents  would  only  be  the  more  rapid  and  complete. 
So  large  and  various  a  demand  would  press,  to  its  limits, 
so  restricted  a  surface.  If  the  utilities  of  life  were  more 
evenly  distributed  through  all  classes ;  if  the  lowest  and 
the  highest  ranks  had  more  nearly  approached  each  other, 
on  a  platform  of  common  comforts ;  if  the  luxuries  of  the 
few  had  become  the  pleasures  of  all,  —  then,  in  this  more 
desirable  and  perfect  state  of  society,  the  cessation  of 
economic  growth  within  a  limited  territory  would  be  the 
earlier,  but  not  so  complete  and  absolute.  These  state- 
ments will  be  seen  to  be  true,  if  we  rightly  apprehend  the 
relation  of  the  three  agencies  of  production  to  each  other. 
On  the  supposition  of  a  populous  community,  intelligent 
and  opulent  in  all  its  members,  confined  to  a  restricted 
territory,  and  yet  a  territory  yielding  the  materials  of  all 
previously  existing  comforts,  it  would  shortly  be  found  that, 
under  a  large  and  unremitting  demand,  all  products  of  the 
earth  had  greatly  risen  in  value.  The  soil,  forced  by  an 
extreme  culture,  would  occasion  high  prices  in  produce, 
and  high  prices  would  occasion  large  rents.  Food  being 
the  prime  necessity  of  laborers,  if  this,  in  the  same  quan- 
tity and  quality,  would  be  retained,  and  the  former  standard 
of  living,  in  other  respects,  preserved,  then  there  must  be 
a  rise  of  wages.  But  these  cannot  be  raised  without  that 
prudence  which  limits  the  growth  of  population.  If,  there- 
fore, the  standard  of  living  is  held  firm,  population  receives 
a  decided  check,  and  the  earlier  and  more  decided,  accord- 
ing as  this  standard  is  high.  But,  the  number  of  laborers 
remaining  the  same,  and  capital  going  on  to  augment  itself, 
there  is  increased  difficulty  in  employing;  it.     It  bids  high 


212  POLITICAL   ECONOMY. 

for  labor,  and  there  is  a  rise  of  wages,  with  a  proportionate 
fall  of  profits.  This  rise  of  wages  renders  it  but  the  more 
difficult  to  add  to  the  supply  of  food,  and  through  it,  to  the 
number  of  laborers.  But  the  constant  fall  of  profits,  as 
capital  continues  to  gain  on  labor,  must  ultimately  suspend 
the  growth  of  capital.  The  minimum  of  profits  is  reached, 
the  gains  being  so  small  as  not  to  invite  or  recompense 
abstinence.  Here  there  is  a  relatively  stationary  state. 
The  brake  has  been  applied,  through  agriculture,  to  labor, 
and  through  this,  to  capital.  The  holders  of  natural  agents 
are  left,  according  to  their  fertility,  on  high  vantage  ground. 
Laborers,  if  the  movement  has  been  suspended  early 
enough,  are  receiving  high  wages,  and  not  simply  a  high 
price.  Capitalists,  as  capitalists,  are  meeting  with  slight 
returns,  though  otherwise  sharing  the  general  prosperity, 
and  the  three  interests,  by  the  prudence  of  laborers,  re- 
main balanced  against  each  other,  without  any  independent 
movement  on  the  part  of  any.  This  state,  though  termed 
stationary,  may  be  one  of  universal  and  eminent  pros- 
perity ;  nor,  owing  to  certain  counteracting  agents,  which 
we  shall  presently  point  out,  would  there  be  an  absolute 
suspension  of  movement. 

$  3.  The  last  step  by  which  this  state  is  reached,  is  the 
sinking  of  profits  to  their  minimum  point,  or  to  the  point  at 
which  they  furnish  no  motive  to  additional  abstinence. 
This  point  will  be  very  different  in  different  communities, 
and  the  lowest  in  the  most  intelligent.  It  mainly  depends, 
in  any  country,  on  the  safety  of  property,  on  the  forecast 
of  the  inhabitants,  and  the  variety  and  amount  of  products 


PROFITS.  213 

which  given  profits  can  command.  If  property  is  not 
secure,  the  danger  preeminently  attaches  to  capital;  the 
element  of  insurance  becomes  very  large,  and  there  must 
be  a  corresponding  magnitude  in  the  returns.  The  growth 
of  industry  can,  by  no  means,  be  more  aided  or  prolonged, 
than  by  the  safety  afforded  by  an  enlightened  government. 
Economy  in  government  has  also  the  same  effect ;  for,  as 
taxes  fall  on  profits,  they  diminish  the  motive  to  their 
acquisition,  and  hasten  the  minimum  point.  The  forecast 
of  a  nation,  that  by  which  it  estimates  the  future  highly, 
as  compared  with  the  present,  and  the  interests  of  pos- 
terity, as  compared  with  its  own,  is  wholly  dependent 
on  its  intelligence.  To  intelligence  alone  is  this  forecast 
of  the  future  given.  As  abstinence  looks  to  the  future  for 
a  reward,  the  readiness  with  which  it  is  undertaken  will 
depend  on  that  culture  which  teaches  men  io  estimate 
rightly  a  future  good.  So,  too,  the  higher  the  civilization, 
the  greater  will  be  the  variety  of  those  commodities  invit- 
ing wealth.  The  more  enlightened  the  community,  there- 
fore, the  lower  the  profits  which  will  call  forth  its  efforts. 

But  there  are  several  things  which  serve  unfavorably  to 
defer  this  stationary  period  —  the  luxury  of  the  higher 
classes,  commercial  crises,  embarrassing  all  industrial 
movements,  and  war.  There  are  others  which  serve 
favorably  to  defer  it  —  moneys  which  are  expended,  with- 
out immediate  reference  to  production,  on  the  educa- 
tional and  higher  interests  of  community,  on  public  parks, 
works,  and  monuments.  These  withdraw,  for  the  time 
being,  something  from  capital ;  but  the  space  is  shortly 
closed  up,  and  a  delay  in  lowest  profits  is  the  only  final 


214  POLITICAL  ECONOMY. 

result.  There  are  also  some  forces  which  retard  the  sta- 
tionary state,  and  prevent  its  ever  being  complete.  Among 
these,  are  all  improvements  in  agriculture,  by  which  the 
same  labor  is  rewarded  with  greater  returns ;  all  division 
of  labor  and  labor-saving  machinery,  by  which  the  capital 
employed  is  increased,  without  a  corresponding  increase  in 
the  number  of  laborers,  by  which  new  methods  are  dis- 
covered of  using  capital,  without  going  into  the  labor 
market.  In  an  intelligent  community,  it  is  evident,  that 
no  bounds  can  be  set  to  these  forces. 

In  the  restricted  community  which  we  have  supposed, 
these  would  be,  and  in  the  earth,  when  it  shall  be  fully 
occupied,  these  will  be  the  agencies  deferring  the  limits  of 
production ;  but  that  which  at  the  present  time  especially 
removes  them,  is  foreign  commerce,  by  which  the  unde- 
veloped resources  of  other  countries  are  made  to  nourish 
the  most  intelligent  and  populous  nations  — by  which  pro- 
duce is  brought  in  from  abroad,  and  capital  is  transferred 
abroad.  In  this  way  it  is,  that,  while  the  general  move- 
ment is  hastened,  the  individual  movement  is  greatly 
retarded,  or  wholly  suspended.  At  no  previous  time  have 
the  resources  of  the  globe  been  so  rapidly  developed  and 
occupied  as  at  present.  Population  is  marching  across 
this  continent  with  astonishing  rapidity,  and  is  preparing 
to  enter  on  all  unoccupied  territory,  and  yet,  with  the  til- 
lage and  skill  of  our  present  prospective  civilization,  the 
goal  is  very  distant. 

$  4.  One  thing  further  remains  to  be  more  distinctly 
pointed  out,  before  passing  from  profits,  —  the  effect  of  a 


PROFITS. 


215 


long  period  of  advance,  especially  in  connection  with  a 
high  rate  per  cent.  If  profits,  in  any  country,  are  twenty 
per  cent,  a  capital  of  one  thousand  dollars,  advanced  for  a 
year,  will  meet  with  a  return  of  two  hundred  dollars ;  but, 
if  advanced  for  six  months,  it  must  meet  with  a  return  of 
only  ninety-five  dollars  and  twenty-three  cents,  and  the 
rate  per  cent,  for  shorter  periods  be  reduced  correspond- 
ingly below  twenty  per  cent.  If  the  capital  is,  however, 
to  be  advanced  for  two  years,  it  must  secure  a  profit  of 
four  hundred  and  forty  dollars,  and  the  rate  per  cent,  for 
all  longer  periods  must  be  similarly  increased.  The  time, 
then,  for  which  capital  is  advanced,  equally  with  its  rate 
per  cent,  must  affect  the  price  of  its  products.  The  fol- 
lowing table  shows,  in  decimals,  the  part  which  profits,  at 
five,  ten,  and  twenty  per  cent,  constitute  of  the  whole 
price : 


6  months. 

1  year. 

2  years. 

4  years. 

.20 
.10 
.05 

.086 
.045 
.023 

.166 
.090 
.047 

.305 
.173 
.092 

.517 
.316 
.176 

From  these  numbers  it  will  be  seen  that  the  rate  per 
cent,  cannot  well  be  high,  and  the  time  of  advance  long, 
in  any  country,  and  it  still  be  able  to  command  foreign 
markets.  If  the  rate  is  five  per  cent  in  one  country,  and 
twenty  per  cent,  in  another,  other  things  equal,  the  time 
of  advance  in  the  last  must  be  reduced  to  six  months, 
while  it  remains  at  two  years  in  the  first.  If  the  rate  is 
twenty  per  cent.,  and  the  advance  four  years,  something 
more  than  half  the  price  goes  to  profits,  and  something 


216  POLITICAL   ECONOMY. 

less  than  half  to  wages.  If  the  advance  be  the  same,  but 
the  per  cent,  five,  about  five-sixths  of  the  price  goes  to 
labor,  and  one-sixth  to  profit.  In  the  first  country,  the  cost 
of  labor  being  the  same,  an  article  would  cost  fifty  dollar?, 
which,  in  the  second,  would  cost  but  thirty  dollars.  Hence, 
in  all  manufactures  demanding  long  advances,  those  coun- 
tries must  command  the  market  in  which  profits  are  low. 
"  As  a  general  rule,  the  average  period  is  longer  or  shorter 
in  one  country  than  in  another,  in  an  inverse  proportion  to 
the  general  rate  of  profit.  In  the  general  market  of  the 
world,  a  country  in  which  the  rate  of  profit  is  low  has  over 
one  where  it  is  high  an  advantage  which  increases  at  com- 
pound interest,  as  the  period  of  advance  is  prolonged. 
The  rate  of  profit  in  Russia  is  supposed  to  be  about  twice 
as  high  as  in  England.  We  will  suppose  that  rate  to  be 
five  per  cent,  per  annum  in  England,  and  ten  in  Russia. 
A  commodity  produced  in  Russia,  by  an  advance  of  ten 
pounds,  for  twenty  years,  would  sell  for  nearly  seventy 
pounds.  A  commodity  produced  in  England,  by  the  ad- 
vance of  twenty  pounds,  for  the  same  time,  would  sell  for 
less  than  sixty  pounds.  The  difference  in  the  rate  of 
profit  would  far  outbalance  a  doubling  of  the  first  expendi- 
ture. Profits  are  supposed  to  be  lower  in  Holland  and  in 
England  than  in  any  other  part  of  the  globe.  The  English 
and  the  Dutch,  therefore,  have  almost  a  monopoly  in  those 
trades  in  which  the  returns  are  distant.  Abstinence,  with 
them,  is  a  cheap  instrument  of  production,  and  they  use 
it  to  the  utmost.  In  their  commerce  with  other  nations, 
they  generally  pay  in  ready  money,  but  give  a  very  long 
credit.      They  purchase  raw  produce,  and  sell  manufac- 


PROFITS.  217 

tures.  In  many  instances,  they  even  advance  to  the  for- 
eign countries  the  first  expenses  of  production.  The 
indigo  of  Bengal,  the  wines  of  the  Cape,  the  wool  of 
Australia,  and  the  silver  of  Mexico,  are,  in  a  great  meas- 
ure, produced,  by  the  advance  of  English  capital.  The 
accumulated  interest  on  such  advances  would  be  an  intol- 
erable addition  to  the  value  of  the  returns,  if  the  rate  of 
profit  were  high.  This  circumstance  occasions  a  tendency 
to  uniformity  in  the  proportion,  in  different  countries,  in 
which  the  produce  is  shared  between  the  capitalist  and 
the  laborer.  Where  profits  are  high,  the  capitalist's  share 
is  kept  down  by  the  shortness  of  the  period  for  which  his 
capital  is  advanced.  Where  they  are  low,  it  is  kept  up  by 
the  prolongation  of  that  period." 

It  will  be  seen  that  the  price  of  products  is  much  more 
rapidly  affected  by  any  increase  of  the  rate  per  cent, 
when  the  advance  is  long,  than  when  it  is  short.  If  the 
time  is  six  months,  a  product  which,  at  five  per  cent, 
profit,  would  cost  twelve  dollars  and  twenty-five  cents, 
would,  at  twenty  per  cent,  profit,  cost  thirteen  dollars  ; 
but  if  the  time  be  four  years,  then  the  product  which, 
at  five  per  cent.,  would  cost  twelve  dollars  and  twenty- 
five  cents,  at  twenty  per  cent.,  would  cost  twenty  dollars 
and  fifty  cents.  More  than  half  of  this  enhanced  price 
would  go  to  the  capitalist,  without  making  his  position 
better  than  in  the  first  case,  where  five-sixths  of  the  price 
went  to  labor.  As  consumers  of  commodities,  the  capi- 
talist and  laborer  are  both  interested  in  securing  a  brief 
time  of  advance ;  and  the  laborer,  also,  from  the  additional 
demand  which  the   same   capital  so  employed  gives  to 

19 


218  POLITICAL   ECONOMY. 

labor.  On  the  other  hand,  if  profits  are  high,  they  add 
but  slightly  to  the  price,  and  take  but  slightly  from  labor ; 
indeed,  as  they  usually  imply  an  active  and  productive 
state,  they  are  often  consistent  with  high  wages  and  gen- 
eral prosperity. 


BOOK      III 


EXCHANGE 


$  1.  Exchange  is  that  part  of  Political  Economy  which 
treats  of  the  principles  regulating  the  barter  of  products, 
and  of  money,  the  instrument  employed.  The  discussion 
of  value  is  fundamental  in  this  department,  and  the  laws 
which  determine  value  are  fundamental  in  all  exchange. 

Distribution  goes  on  with  production,  and  both  are  fre- 
quently completed  at  the  same  instant.  The  capitalist 
pays  the  laborer  as  the  labor  is  expended,  and  the  com- 
modities remain  to  him  as  restored  capital  and  profits. 
So,  also,  exchange  accompanies  every  step  of  production, 
and  the  same  act  is  often  one  of  production,  of  distribu- 
tion, and  of  exchange.  The  commodities  manufactured 
by  the  laborer  and  capitalist  are  not  usually  those  which 
they  wish  to  consume,  but  are  to  be  exchanged  for  them ; 
nor  frequently  are  the  commodities  —  we  have  not  yet 
introduced  money  in  our  discussion,  save  as  an  ordinary 
commodity  —  in  which  the  laborer  is  paid,  those  which  he 
consumes.  Though  separate  in  their  treatment  and  in  the 
laws  which  govern  them,  the  three  parts  of  industrial 
science  are  simultaneous  in  their  development  and  prac- 
tical workings. 


220     .  POLITICAL  ECONOMY. 

This  department  is  not  without  its  own  exclusive  agents. 
A  large  portion  of  labor  and  capital  is  directly  employed  in 
the  transfer  and  traffic  of  commodities.  The  merchant, 
the  mariner,  the  porter,  while  transferring  values,  increase, 
by  their  labor,  the  values  so  transferred,  and  are  them- 
selves producers,  claiming  a  share  of  the  products.  As 
the  utility  of  a  thing  is  not  simply  dependent  on  intrinsic 
qualities,  but  on  the  availability  of  these  qualities,  the 
porter  may  add  not  less  to  the  utility  of  an  article  than  the 
manufacturer.  No  inconsiderable  part  of  the  fixed  capital 
of  any  civilized  nation  is  represented  in  roads,  in  railroads, 
canals,  docks,  in  the  permanent  improvements  of  naviga- 
tion, in  wagons,  cars,  and  ships.  Nor  are  machinery  and 
invention  anywhere  more  efficacious  in  reducing  the  cost 
of  products,  and  multiplying  the  enjoyments  of  all  classes, 
than  here.  The  merchant  is  among  the  illustrations  of  the 
division  of  labor,  and  the  resulting  reduction  in  cost.  He 
does  that  cheaply  for  a  whole  community  which  must, 
otherwise,  be  done  by  each  of  its  members,  at  a  great 
expense.  A  large  importation  of  needful  and  customary 
commodities  by  one,  is  made  to  take  the  place  of  a  much 
more  laborious  and  partial  supply,  secured  by  each  indi- 
vidual. Though  scarcely  observed,  the  time  saved  and 
the  additional  utilities  furnished  are  very  great.  No  class 
is  more  effective  in  the  interests  of  production  than  this 
class. 

Here,  too,  we  have  money,  one  of  the  most  facile,  most 
frequently  employed,  and  productive  of  instruments  —  the 
very  language  of  commerce.  Important,  however,  as  is  its 
office,  there  does  not  belong  to  it  that  necessity  and  omnip- 


EXCHANGE.  221 

« 

otence  which  it  has  ever  possessed,  in  the  minds  of  its 
worshippers.  No  questions  in  Political  Economy  require 
more  careful  thought,  are  more  practical,  than  those  of 
value  and  those  of  currency.  The  last  is  truly  the  life- 
blood  of  industry.  If  vitiated  and  reduced  by  fraudulent 
coin  or  worthless  paper,  no  innate  forces  of  production  can 
compensate  or  correct  its  destructive  influences  ;  but  if  the 
honest  and  reliable  medium  of  exchange,  the  most  essen- 
tial condition  of  a  healthy  economic  growth  is  met. 

19* 


CHAPTER   I. 

VALUE. 

$  1.  Political  Economy  is  a  discussion  of  values,  and  we 
have  seen  the  agents  by  which  these  are  produced,  the 
principles  according  to  which  they  are  distributed,  and  we 
now  need  to  understand  the  laws  regulating  their  exchange, 
one  for  another.  Utility  and  difficulty  of  attainment  are 
present  in  all  values ;  but  we  wish  further  to  know  what  it 
is  in  each  product  which  measures  its  value.  It  is  not  its 
utility;  the  highest  utility  —  that  is,  the  highest  ability  to 
gratify  human  desire  —  can  exist  without  imparting  any 
value  to  the  thing,  or  it  may  exist  in  a  high  degree  in  a 
commodity,  and  yet  that  commodity  be  possessed  of  but  a 
small  value.  Value  in  use,  which  is  the  acquired  or  intrin- 
sic ability  of  anything  to  gratify  human  desire,  is  not  a 
measure  of  its  exchange  value. 

The  value  of  anything  is  its  purchasing  power.  The 
price  of  anything  is  its  power  to  command  gold  or  silver, 
or  that  which  constitutes  the  currency  of  the  country. 
Value  may  be  expressed  in  any  commodity  whatever; 
price  is  expressed  in  one  commodity  only.  Value,  to  be 
fully  determined,  demands  a  universal  expression.  We 
need  to  know,  not  how  the  product  will  exchange  for  one, 
but  how  it  will  exchange  for  any  one,  among  all  products. 


VALUE.  223 

The  purchasing  power  of  a  community  is  seen  in  its  com- 
mand of  utilities,  and  its  command  of  one  utility  furnishes 
us  no  data  from  which  we  can  arrive  at  its  command  of 
another.  It  is  usually  through  a  resolution  of  values  into 
price,  that  we  compare  them  with  each  other.  We  arrive 
at  the  exchange  relation  of  one  commodity  with  others, 
through  the  medium  of  a  third  commodity,  in  which  the 
values  are  all  expressed.  We  usually  stop  short,  in  deter- 
mining the  exchange  value  of  a  thing,  when  we  know  the 
amount  of  gold  for  which  it  will  exchange,  or  its  price, 
though  it  is  evident  that  this  alone  is  no  adequate  test  of 
its  real  value,  and,  did  we  not  tacitly  understand  how 
much,  in  turn,  this  gold  would  command  of  material  enjoy- 
ments, we  should  not  so  regard  it.  With  one  of  the 
steps  —  that  by  which  gold  is  compared  with  products  in 
general  —  we  are  familiar,  and,  omitting  it,  need  only,  for 
the  solution  of  value,  to  know  the  price  of  the  article. 
This  is  the  enthymeme  of  daily  exchange,  the  price  of 
every  product  making  us  but  the  more  familiar  with  the 
exchange  value  of  gold,  and  this  existing  as  a  tacit  premise 
in  the  mind,  we  settle  general  value  by  settling  the  value 
of  the  particular  commodity,  represented  in  price.  It  is 
evident  that  the  value  of  a  product  is  affected,  not  merely 
by  those  causes  which  act  upon  itself,  but  also  by  those 
acting  on  other  products.  Assuming  labor,  for  a  moment, 
to  be  the  sole  cause  of  value,  a  product  may  be  raised  in 
value  when  more  labor  is  demanded  for  its  production,  and 
also  when,  the  labor  remaining  the  same  in  this  depart- 
ment, some  other  articles  are  cheapened  in  their  produc- 
tion.    In  either  case  it  will  exchange  for  larger  amounts, 


224  POLITICAL   ECONOMY. 

and  has  an  increased  value.  It  may  often  be  difficult  to 
determine  to  what  a  given  change  in  value  is  to  be  as- 
cribed, whether  to  a  fall  on  one  side,  or  a  rise  on  the  other, 
or  to  both  these,  or  to  an  unequal  fall  of  both,  or  rise  of 
both.  Any  forces  which  act  partially,  or  unequally,  disturb 
value ;  and  only  these.  Since  the  value  of  one  thing  is 
expressed  in  that  which  it  commands  of  other  things,  a 
general  rise  in  value  is  impossible.  If  it  command  more 
of  them,  they  in  turn  command  less  of  it,  and  have  fallen 
in  value  in  reference  to  it.  It  is  impossible  1o  express  a 
rise  without,  at  the  same  time,  implying  a  fall ;  that  which 
has  been  added  to  one  side  has  been  taken  from  the  other. 
In  this  respect,  value  differs  from  price.  Gold  may  rise,  in 
reference  to  all  other  things,  with  a  corresponding  and 
universal  fall  of  price. 

From  this  it  will  be  seen  that  anything  which,  operating 
equally,  affects  all  products  in  the  ratio  of  their  value,  can- 
not change  value,  since  it  has  not  changed  that  relation  of 
products  upon  which  value  alone  depends,  and  which  alone 
it  expresses.  A  rise  of  wages,  or  of  profits,  or  of  both,  so 
far  as  they  affect  all  departments  equally,  do  not  affect 
value,  the  ratio  of  exchange  remaining  the  same. 

$  2.  The  principles  which  determine  value  are  not  the 
same  in  all  products.  Difficulty  of  attainment,  though  a 
much  more  important  cause  in  estimating  value  than  util- 
ity, does  not,  in  all  cases,  furnish  a  measurement.  But  as 
these  two  are  the  sole  causes  of  value,  we  should  natu- 
rally look  to  them,  in  their  joint  action,  for  a  measure  of  its 
amount.     Difficulty  of  attainment  is  resolvable  into  labor 


VALUE.  225 

and  abstinence,  since  these  include  all  the  danger  incident 
to  their  employment ;  and  in  this  cause  of  value,  we  shall 
find  a  very  general  measure  of  value.  Though  it  is  impos- 
sible to  make  labor  the  only,  it  is  the  chief  measure  of 
value. 

The  first  and  most  numerous  class  of  products,  whose 
value  is  governed  by  one  principle,  are  all  manufactured 
products,  capable  of  indefinite  increase.  Here  we  are  to 
look  solely  to  the  second  cause  of  value  for  its  measure. 
It  is  a  question,  not  how  great  is  the  utility,  but  what  price 
in  exertion  must  be  paid  for  that  utility.  The  value  can, 
indeed,  never  rise  above  the  utility,  since,  for  labor  to  this 
extent,  there  could  be  no  motive ;  but  it  may,  to  any  de- 
gree, fall  below  it,  as  the  labor  requisite  to  obtain  the 
products  is  diminished.  The  utility  of  an  object,  its  ability 
to  create  sufficient  desire  to  secure  purchasers  being 
granted,  it  is  evident  that  no  one  will  be  willing  to  give  for 
it  commodities  which  cost  greater  exertion  than  that  by 
which  the  purchased  commodity  can  be  gained.  Two 
products,  which  are  to  be  exchanged  for  each  other,  will 
be  compared,  in  reference  to  the  difficulty  to  be  overcome, 
in  securing  further  supplies  of  each.  If  more  is  demanded 
for  a  product  than  equals  the  exertion  necessary  to  secure 
it,  there  is  no  motive  to  give  this  more,  in  preference  to 
putting  forth  the  exertion  by  which  the  commodity  may  be 
obtained.  Men  wish  that  the  difficulty  of  attainment, 
or  —  jf  we  use  the  term  labor  to  express  the  entire  diffi- 
culty overcome,  as  it  does  by  much  the  largest  share  of 
it  —  the  amount  of  labor  represented  in  the  commodity 
purchased,  shall  be  equal  to  that  represented  in  the  com- 


226  POLITICAL  ECONOMY. 

raodity  sold ;  and,  if  there  is  any  marked  inequality,  they 
find  no  motive  to  give,  and,  in  a  large  mercantile  com- 
munity, will  not  give  the  greater  for  the  less.  It  is  only 
when  the  supply  is  limited,  or  the  demand  immediate,  that 
we  are  able  to  fall  back  on  utility,  or  the  amount  of  desire 
in  the  purchaser,  and  strain  the  price  up  to  that  desire. 

Competition  is  able  to  force  down  price,  and  finds  its 
gain  in  forcing  it  down  to  an  exchange  of  equal  labor,  but 
cannot  permanently,  and  has  no  motive  to  force  it  essen- 
tially below  this.  He  who  gives  more  labor  for  less  labor, 
to  that  extent,  throws  away  labor,  and  forfeits  an  advantage. 
When  products  are  so  exchanged,  that  equal  amounts  of 
labor  compensate  each  other,  the  advantages  of  trade  are 
divided  equally  between  the  parties,  and  these  are  the 
advantages  which  arise  from  peculiar  facilities,  natural 
agents,  and  a  division  of  labor.  Labor,  for  our  present 
purpose,  represents  all  that  is  represented  by  difficulty  of 
attainment,  including  those  disadvantages  which  attend 
upon  its  several  kinds,  and,  in  the  rough  equalizing  of 
amounts,  these  are  included  in  the  estimate.  It  is  evident, 
then,  that  if  any  permanent  advantage  were  given  to 
either  party,  in  the  exchange  of  products,  such  advantage 
could  only  be  retained  by  some  monopoly,  either  of  law  or 
of  natural  agent,  —  some  restriction,  by  which  a  free  trans- 
fer of  labor  should  be  prevented,  and  the  action  of  general 
principles  suspended.  The  tacit  supposition  of  every  such 
discussion  is  a  large  commercial  community  where  natural 
forces  have  unrestrained  action.  There,  equality  of  labor 
in  products  must  be  the  law  of  their  exchange. 

If  all  exchange  were  barter,  in  each  instance,  to  settle 


VALUE.  227 

the  difficulty  of  attainment  and  strike  an  equation,  would 
be  a  thing  neither  accurately  nor  readily  done ;  but,  through 
price,  the  problem  is  made  a  simple  question  of  figures,  at 
once  resolvable.  When  any  new  commodity  is  introduced 
in  the  commercial  scale,  and  its  difficulty  of  attainment 
expressed  in  price,  this  may  be  inaccurately  done ;  indeed, 
the  interest  of  men  prompt  to  too  high  an  estimate,  but 
competition  immediately  beginning  to  act,  serves  to  correct 
and  re-correct  this  price,  till  shortly  it  becomes  a  very  true 
representative  of  the  labor  expended,  and  actual  and 
rightful  value  become  the  same. 

The  difficulty  of  attainment  which  measures  value  in 
the  case  of  manufactured  articles  susceptible  of  increase 
is,  not  that  which  has  actually  been  overcome  in  securing 
any  given  commodities,  but  that  which  must  be  encoun- 
tered in  again  securing  them.  The  accidents  and  misfor- 
tunes of  the  individual  cannot  be  redeemed  in  the  price  of 
his  products.  The  purchaser  is  willing  to  recompense,  in 
the  price,  the  present  difficulty  of  attainment,  but  not  the 
obstacles,  misfortunes,  or  ignorance  of  the  past.  If  new 
machinery  has  been  invented,  he  avails  himself  of  the 
consequent  reduction  of  price,  and  leaves  the  holders  of 
the  old  goods  to  suffer  the  loss.  It  is  while  price  is  sink- 
ing, during  the  transition  from  the  old  to  that  of  the  new 
methods,  that  enterprise  receives  its  largest  rewards,  and 
mechanical  conservatism  its  severest  castigation. 

$  3.  We  have  seen  that,  in  the  first  class  of  products, 
difficulty  of  attainment,  the  second  cause  of  value,  meas- 
ures value,  and  that  the  chief  element  of  this  difficulty 


228  POLITICAL  ECONOMY. 

is  labor ;  but  this  is  not  a  sufficient  analysis  of  the  forces 
which  combine  to  constitute  value.  That  which  affects 
value  must  be  a  force  acting  unequally  on  the  several 
kinds  of  production.  If  the  climate  of  a  whole  country 
should  suddenly  become  unhealthy,  the  products  of  that 
country  would  continue  to  exchange,  at  the  same  rates  for 
each  other;  but  if  a  single  district  was  exposed  to  any 
permanent  and  marked  malaria,  the  products  peculiar  to 
that  district  would  rise  in  price.  With  this  principle  in 
view,  we  shall  see  that  value  is  not  affected  by  wages. 
These  may  be  high  or  low,  and,  as  they  are  high  or  low  for 
all  departments,  value  is  not  thereby  altered.  The  cost  of 
each  of  two  products  has  been  correspondingly  enhanced 
or  diminished,  and  in  the  exchange  the  quantity  of  neither 
is  affected.  This,  however,  is  only  true  of  wages  paid  for 
the  same  kind  of  labor.  Wages  for  different  kinds  of  labor 
are  not  the  same  for  the  same  amounts,  and,  therefore, 
affect  unequally  the  kinds  of  production  into  which  they 
enter.  Any  rise  or  fall  of  wages  which  runs  through  all 
kinds  of  labor  has  no  effect  on  value;  but  the  original 
inequalities  of  wages,  and  these,  as  at  any  time,  enhanced 
or  diminished,  to  a  corresponding  extent  modify  value. 
That  which  is  various  in  the  difficulty  of  attainment  at- 
tending the  several  kinds  of  production,  is  the  amount  of 
labor  required.  Each  commodity  represents  a  different 
amount,  and  this  enters  in  to  determine  the  quantity  of 
any  other  commodity  which  can  be  secured  in  exchange. 
An  article  which  can  only  be  produced  by  two  days'  labor 
must  command  two  articles,  each  produced  by  a  single 
day's  labor,  and  this  exchange  value  will  remain  the  same, 


VALUE.  229 

whatever  price  labor  bears.  The  amount  of  exertion  rep- 
resented is  the  prime  difference  between  products,  and 
that,  therefore,  which  preeminently  determines  value. 

Nor  do  profits,  the  price  of  the  abstinence  by  which  the 
wages-fund  is  maintained,  with  certain  limitations,  affect 
value ;  these  profits,  having  the  same  rate  per  cent,  are 
relative  to  the  cost  of  commodities  equal.  Products  which 
cost  the  labor  of  one  hundred  days  will  have  double  the 
value  of  those  costing  the  labor  of  fifty  days,  but  the 
abstinence  demanded  by  the  wages-fund,  in  the  one  case, 
is  also  double  that  in  the  other ;  hence  the  additional  cost 
imposed  upon  each  by  profits,  is  in  the  ratio  of  their  pre- 
vious values,  and  they  must  still  exchange  for  each  other 
in  the  old  amounts,  and  their  value  as  expressed  in  each 
other,  remain  the  same.  Profits  on  the  wages  of  one 
hundred  days  are  double  those  on  fifty,  and  must  still  keep 
the  value  of  the  one  article  double  that  of  the  other. 
Thus,  in  all  products,  profits,  at  a  single  rate,  and  for  equal 
periods  existing  as  a  uniform  pressure  throughout,  leave 
the  relation  of  exertion  the  same  as  before,  and,  as  there 
is  no  such  thing  as  a  general  rise  of  value,  leave  value 
unaffected. 

The  pressure  of  the  air  affecting  equally  all  the  surfaces 
of  a  body,  does  not  modify  its  weight. 

But  there  are  certain  inequalities  in  profits,  and  these 
occasioning  varieties  in  production,  affect  value.  Capital, 
even  more  than  labor,  is  affected  by  risk,  and  as  this 
attaches  variously,  the  rate  per  cent,  is  modified  with  a 
corresponding  modification  of  value  in  the  commodities 
produced.      So,  also,  capital  is  constantly  advanced,  for 

20 


230  POLITICAL   ECONOMY. 

very  different  periods,  and  as  this  difference  in  time  is 
equivalent  to  a  difference  in  the  rate  per  cent.,  the  variety 
which  exists,  in  this  respect,  among  products,  is  trans- 
ferred to  their  values.  Owing  to  these  inequalities,  we 
cannot  leave  out  the  element  of  abstinence  from  that  diffi- 
culty of  attainment  which  decides  value. 

$  4.  A  rise  or  fall  of  wages  does  not  affect  value,  nor  a 
rise  or  fall  of  profits,  so  far  as  these  enter  equally  into  the 
cost  of  products.  Owing,  however,  to  the  unequal  use  of 
buildings  and  machinery,  in  the  several  kinds  of  produc- 
tion, profits  are  not  a  uniform  element  in  cost,  but  are  rela- 
tively greater  or  smaller,  according  to  the  degree  in  which 
any  particular  commodity  is  the  result  of  mechanical  or  of 
manual  power.  In  the  several  kinds  of  manufacture,  great 
variety  exists  in  the  aid  furnished  by  machinery ;  in  many, 
it  performs  much  the  largest  part  of  the  work ;  in  others, 
but  a  small  portion.  This  inequality  occasions  an  inequality 
in  the  amount  of  abstinence,  entering  into  the  cost  of  pro- 
duction ;  this  inequality  again  appears  in  the  value. 

In  difficulty  of  attainment,  or  cost  of  production,  labor 
and  abstinence  both  enter;  but,  as  the  last  of  these  ele- 
ments tends  to  an  equality  in  all  products,  being  but  a 
fixed  rate  per  cent,  on  the  other  element,  it,  to  this  extent, 
drops  out  of  value,  making  its  appearance  only  when  the 
insurance  against  risk  is  disguised  under  the  name  of 
profits,  or  when  the  times  through  which  labor  is  extended, 
and  capital  as  a  wages-fund  has  been  advanced,  are  un- 
equal. If  labor  only  was  employed  in  production,  profits, 
setting  aside  variety  in  time,  would  wholly  disappear  from 


VALUE.  231 

value,  though  still  remaining  in  the  cost  of  production.  In 
price,  however,  they  always  appear,  since  only  when  they 
are  kept  a  distinct  element,  are  the  constantly  returning  in- 
equalities of  time  readily  introduced.  If,  in  each  of  two 
cases,  the  labor  expended  in  securing  certain  products  has 
been  one  hundred  days,  equivalent  to  one  hundred  dollars, 
and  the  time  of  advance  four  months,  the  value  of  the 
commodities,  in  each  case,  will  be  one  hundred  and  two 
dollars,  and  in  exchange  we  balance  them  according  to 
this  joint  expression  of  wages  and  profits.  It  is  evident, 
that  the  goods  received,  and  hence  the  value,  are  not 
affected  by  this  introduction  of  profits,  though  we  have,  by 
this  division  of  price  into  two  elements,  a  column  under 
which  an  increase  or  diminution  of  time,  or  risk,  at  once 
appears.  Regarding  gold  as  a  product,  it  is  the  fact,  that 
one  hundred  and  two  dollars  have  cost  one  hundred  days' 
labor,  that  causes  it  to  exchange  for  goods  containing  the 
same  amount  of  labor.  Abstinence  remaining  the  same, 
labor  cancelled  labor,  and  alone  determined  the  value  of 
each  product  in  each. 

If  either  wages  or  profits,  or  both,  were  to  increase,  the 
gold  contained  in  one  hundred  and  two  dollars  would  still 
continue  to  exchange  for  the  same  amount  of  goods,  profits 
being  alike  in  both,  and  the  labor  of  the  one  still  balancing 
that  of  the  other.  But,  in  price,  wages  and  profits  both 
appearing,  the  rise  of  the  one  would  cause  a  new  division 
of  the  one  hundred  and  two  dollars,  and  a  rise  of  both,  in 
the  production  of  this  commodity,  while  leaving  the  nomi- 
nal share  of  each  the  same,  would  increase  its  purchasing 
power.     Price  keeps  distinct  the  elements  of  cost,  though 


232  POLITICAL    ECONOMY. 

those  elements,  by  cancelling  each  other,  frequently  do  not 
affect  value.  The  product  of  a  day's  labor  necessarily  in- 
volves a  day's  abstinence;  the  product  of  one  hundred 
days,  one  hundred  days'  abstinence ;  and,  so  long  as  this 
concomitant  of  labor  is  universal  and  the  same,  we  have 
no  occasion  to  compute  it.  Practically,  however,  there  is 
perpetual  variety.  Wages  may  be  advanced  for  the  day, 
or  for  several  or  many  days,  and  this  element  of  profits 
must  be  perpetually  present  in  our  computation.  An 
inequality  of  profits  in  the  price  of  commodities  is  occa- 
sioned by  the  introduction  of  machinery,  as  capital  is 
thereby  substituted  for  labor,  and  profits  for  wages.  This 
substitution  taking  place  unequally,  price  is  unequally 
affected  by  the  existing  rate  per  cent.,  or  by  any  rise  or 
fall  thereof,  and  the  value  of  commodities  suffers,  from  this 
cause,  further  modification.  This  is  best  seen  in  an  illus- 
tration. Suppose  that  certain  products  are  the  results  of 
one  hundred  days'  labor  and  the  abstinence  of  four  months. 
Price  will  then,  at  one  dollar  per  day  and  six  per  cent,  per 
annum,  be  one  hundred  and  two  dollars.  The  products 
will  exchange  for  any  others  representing  the  same  exer- 
tion and  the  same  time.  Let  us  also  suppose,  that  in 
another  manufactory,  for  whose  products  these  have  hith- 
erto been  exchanged,  there  is  introduced  a  machine  per- 
forming the  labor  of  ten  men,  and  demanding  the  attention 
of  one  man,  and  that  the  original  cost  of  this  machine  is 
one  hundred  dollars,  and  that  it  will  last  ten  years. 

In  the  first  case,  two  men  may  have  been  employed  for 
two  months,  or  fifty  days,  in  producing  the  commodities, 
and  the  two  remaining  months  have  been  occupied  in  the 


VALUE.  233 

sale  of  the  goods,  and  securing  a  return  thereon.  In  the 
second  case,  one  man,  with  the  machine,  would  accom- 
plish, in  ten  days,  what  before  had  occupied  two  men  for 
two  months.  The  time,  therefore,  would  now  be  reduced 
to  two  and  one-third  months,  and  the  cost  of  the  previous 
products  of  one  hundred  days'  labor  would,  as  they  are 
now  manufactured,  be  reduced  to  ten  dollars  and  forty-six 
cents,  viz :  ten  dollars  for  labor,  twelve  cents  for  interest 
thereon,  seventeen  cents  for  interest  on  the  value  of  the 
machine,  and  seventeen  cents,  or  six  per  cent  per  annum, 
wherewith  to  replace  the  machine,  at  the  expiration  of  ten 
years. 

In  these  two  prices,  one  hundred  and  two  dollars,  and 
ten  dollars  forty-six  cents,  profits  stand  in  different  ratios. 
In  the  first,  fifty  parts  are  wages,  and  one  profits ;  in  the 
other,  thirty-five  parts  wages  and  one  profits.  These  pro- 
ducts would,  regarding  each  as  a  unit,  now  exchange  for 
each  other  in  the  inverse  ratio  of  their  cost ;  or,  nine  and 
seven-tenths  of  the  second  kind  for  one  of  the  first.  Let 
wages  now  be  doubled,  and  no  alteration  ensues;  the 
price  of  the  first  becomes  two  hundred  and  four  dollars, 
and  of  the  second  twenty  dollars  and  ninety-two  cents,  — 
twenty  dollars  for  wages,  twenty-four  cents  for  interest, 
thirty-four  cents  for  interest,  since  the  machine  would  now 
have  cost  twice  as  much  as  before,  and  thirty-four  cents  to 
replace  the  first  expense.  The  ratio  of  exchange  remains 
the  same,  nine  and  seven-tenths.  Let  profits  double,  and 
value  is  at  once  affected.  The  price  of  the  first  product 
becomes  one  hundred  and  four  dollars;  of  the  second, 
ten  dollars  and  sixty-seven  cents,  —  ten  dollars  for  labor, 

20* 


234  POLITICAL  ECONOMY. 

twenty-four  cents  interest  thereon,  thirty-four  interest  on 
machine,  and  nine  cents,  or  thereabouts,  to  replace  first 
cost.  Profits,  in  the  second  case,  now  constitute  one  share 
in  every  seventeen,  whereas  they  before  constituted  one  in 
every  thirty-five,  and  the  ratio  of  exchange  between  the 
two  products  is  nine  and  five-tenths.  Before,  ten  of  the 
one  kind  of  products  purchased  ninety-seven  of  the  other; 
now,  but  ninety -five. 

The  inequality  occasioned  by  machinery  would  be  much 
greater,  were  it  not  that  the  time  occupied  in  production  is 
greatly  abridged  by  its  use.  Whenever,  therefore,  unequal 
amounts  of  fixed  capital  in  machinery,  tools,  and  buildings, 
enter  into  production,  the  value  of  the  products  will  be 
affected  by  the  given  rate  per  cent,  and  altered  by  any 
alteration  in  that  per  cent.  It  is  also  evident,  that,  in  pro- 
portion as  this  machinery  is  less  durable,  and  must  be 
more  frequently  replaced  with  labor,  it  saves  less  labor, 
partaking  more  of  the  character  of  labor,  and  hence  has 
less  effect  on  labor. 

Ground  rent  and  unequally  distributed  taxes  are  among 
the  occasional  elements  which  find  their  way  into  the  cost 
of  production,  and  through  it  into  value.  Ground  rent, 
whenever  it  exists  as  a  heavy  charge,  is  compensated  by 
some  peculiar  advantage  conferred,  some  labor  of  transfer 
escaped,  and  cannot,  therefore,  be  said  to  enter  into  the 
cost  of  production.  So  far  as  the  ground  occupied  makes 
no  compensation  in  advantage  conferred,  it  can  hardly  bear 
more  rent  than  it  would  be  able  to  render  when  employed 
in  agriculture,  and  only  to  this  extent  can  it  enhance 
value.     If  all  grounds,  therefore,  were  equally  productive, 


VALUE.  235 

ground  rent  would  not  affect  value,  and  it  can  only  do  so 
to  the  extent  of  their  inequality  in  fertility.  Taxes  which 
fall  upon  a  portion  of  production  are  immediately  repre- 
sented in  the  value  of  the  products  so  burdened,  and  that 
which  the  legislator  had  failed  to  distribute  is  distributed 
by  the  action  of  natural  forces.  The  commodity  taxed 
comes  to  all  consumers  at  a  higher  rate,  to  the  producer  in 
common  with  others,  he,  however,  experiencing  the  addi- 
tional disadvantage  of  a  retrenchment  of  the  market  by  a 
rise  of  price 

$  5.  The  value  which  we  have  now  seen  to  attach  to 
the  first  class  of  products,  including  the  vast  mass  of  man- 
ufactured commodities,  is  measured  by  the  comparative 
difficulty  of  attainment,  by  the  comparative  cost  of  produc- 
tion. There  are  certain  elements  of  wages  and  rate  per 
cent,  which  belong  to  the  actual  cost  of  production,  which, 
from  their  equality  in  all  production,  do  not  affect  the  ratio 
existing  between  the  cost  of  articles,  and  hence  do  not 
affect  value.  Yet  value,  in  this  class,  may  ever  be,  and  is 
usually  obtained  by  a  comparison  of  the  actual  cost  of  pro- 
duction, commodities  exchanging  for  each  other  in  the  ratio 
of  this  cost.  In  the  case  of  agricultural,  the  second  class 
of  products,  —  those  capable  of  indefinite  multiplication, 
but  with  a  constantly  increasing  expenditure,  —  the  meas- 
ure of  value  is  essentially  the  same,  though  the  difficulty 
of  attainment,  or  cost  of  production,  is  now  not  common 
to  all,  but  belongs  only  to  that  limited  portion  obtained 
with  the  most  exertion,  and  whose  culture  yields  no 
rent. 


236  POLITICAL  ECONOMY. 

There  cannot  permanently  be  two  prices  in  the  same 
market.  As  soon  as  the  produce  of  the  easiest  culture  is 
not  able  to  meet  the  demand  for  food,  there  must  be  a  rise 
of  price  sufficient  to  meet  the  expense  of  entering  on 
poorer  lands,  or  a  more  laborious  tillage.  The  former  til- 
lage and  the  better  lands  will,  at  this  price,  enjoy  an 
advantage  and  yield  a  rent.  The  price  is  governed,  not 
by  the  cost  of  culture  under  these  happier,  but  under  the 
more  unfavorable  circumstances;  since  this  culture  must 
now  be  remunerated,  in  order  that  it  may  be  sustained. 
Thus,  continually,  as  the  demand  enlarges,  there  is  a  rise 
of  price,  that  thereby  a  supply  may  be  obtained,  adequate 
to  meet  the  new  necessity,  —  the  price  requisite  to  recom- 
pense the  cost  of  the  last  supply  of  food  demanded  neces- 
sarily constituting  the  price  of  all.  In  this  class  of  com- 
modities, their  value  depends,  as  hitherto,  on  the  cost  of 
production,  or  those  variable  elements  therein,  already 
specified ;  but  it  is  no  longer  the  cost  of  production  of  all 
the  commodities  consumed,  but  of  the  most  expensive 
part  of  each  class  of  grains  and  roots  that  actually  finds 
consumers. 

Rent,  then,  does  not  enter  into  value.  It  is  not  the 
cause,  but  the  effect  of  increased  values.  It  is  the  resi- 
duum of  advantage  that  is  left  behind,  in  each  step  of  til- 
lage. It  is  paid  in  the  price  which  grains  raised  on  the 
best  grounds  bring,  but  it  does  not  cause  them  to  bring 
this  price.  A  less  favorable  agriculture  has  raised  the  cost 
of  production,  and  left  to  these  products  this  margin  for 
rent.  While,  therefore,  price  pays  rent,  rent  does  not 
enhance  price,  but  arises  from  the  impossibility  of  two 


VALUE.  2-37 

prices  for  the  same  article,  existing  at  the  same  place  and 
time.^  We  may  then  regard  the  measure  of  value  in  the 
first  two  classes,  comprehending,  as  they  do,  nearly  all 
products,  as  essentially  the  same,  —  the  comparative  cost 
of  production.  What  has  already  been  said  of  amount  of 
labor,  variety  of  profits  through  risk,  time,  and  machinery, 
is  equally  applicable  here,  though  labor  is  now  more  than 
ever  the  chief  element  of  cost. 

$  6.  The  value  dependent  on  the  cost  of  production  may 
be  termed  the  natural  value,  and  is  to  be  distinguished 
from  the  actual,  or  market  value.  Besides  the  permanent 
causes  which  measure  value,  and  of  which  we  have 
spoken,  there  are  certain  transitory  causes,  occasioning  a 
constant  vacillation  of  price,  and,  for  short  periods,  very 
violent  transitions.  The  average  price  of  a  long  period 
will  correspond  very  nearly  to  the  natural  value.  This  is 
the  point  through  which  the  vibrations  of  price  take  place, 
and  to  which,  on  each  relaxation  of  force,  it  tends  to 
return.  Natural  value  may,  in  some  commodities,  seldom 
be  the  market  value,  while  it  is  ever  curbing  and  drawing 
back  that  value  to  itself. 

These  causes  are  represented  under  the  terms  of  demand 
and  supply,  —  the  amount  of  any  product  that  is  immedi- 
ately desired,  and  the  amount  that  can  be  immediately 
furnished.  If  there  is  more  wished  than  can  now  be  fur- 
nished of  any  commodity,  there  is  a  competition  among  buy- 
ers to  secure  it.  Under  this  competition  the  price  rises,  but, 
with  each  rise  of  price,  there  is  a  reduction  in  the  number 
of  those  who  wish  it.     The  wishes  of  men  are  not  absolute, 


238  POLITICAL   ECONOMY. 

but  have  relation  to  price.  Ten  men  have  a  desire  for  an 
article  while  the  price  remains  at  one  dollar,  while  but  two 
have  such  a  desire  when  it  rises  to  two  dollars,  and  but 
one  when  it  becomes  three  dollars.  At  this  last  price,  there 
is  an  equality  between  the  supply  and  demand,  and  price 
tends  to  rise  till  this  equality  is  secured.  The  ordinary 
sales  of  goods  resemble  the  more  rapid  and  forced  sales 
of  an  auction.  At  the  lowest  value  there  are  many  bid- 
ders, but  the  value  rises  till  there  is  left  but  one  bidder  for 
the  one  article.  Here  an  equation  is  secured,  and  the  rise 
stops.  So,  too,  when  the  supply  is  in  excess  of  the  de- 
mand, the  market  becomes  sluggish ;  sellers  attempt  to 
quicken  it  by  lowering  the  price.  At  each  fall,  the  circle 
of  purchasers  is  enlarged,  till,  at  length,  the  practical,  im- 
mediate demand  is  made  equal  to  the  supply.  This  is  the 
equation  of  supply  and  demand,  and  upon  it  depends  the 
present  market  price. 

Different  commodities  are  very  differently  affected  by 
these  causes.  The  prices  of  some  are  constantly  vacillat- 
ing under  it ;  others  are  seldom  affected  by  it.  The  more 
rapidly  a  commodity  can  be  produced,  and  the  more  dura- 
ble it  is,  the  less  will  it  be  affected  by  this  vacillation  of 
the  market ;  the  longer  the  time  needful  for  its  production, 
and  the  more  perishable  it  is,  the  more  it  will  be  affected. 
If,  as  the  demand  becomes  urgent,  new  and  adequate  sup- 
plies can  at  once  be  provided,  price  has  no  opportunity  to 
rise.  If  the  demand  suddenly  falls  away,  and  the  article 
can  be  kept  without  injury,  it  may  be  laid  aside  till  a 
change  takes  place  in  the  market.  If,  on  the  other  hand, 
no  urgency  of  demand  can  extort  a  supply,  short  of  four 


VALUE.  239 

months  or  a  year,  price  may  be  forced  up  to  a  very  high 
point.  If  fruit  must  be  sold  to-day,  or  be  lost,  in  the  last 
emergency  it  will  be  offered  for  any  price.  Manufactured 
commodities,  usually  more  durable  and  rapidly  furnished, 
are  less  affected  by  changes  of  demand  than  agricultural 
commodities,  all  of  which  require  considerable  time,  and 
many  of  which  are  highly  perishable.  The  demand  is 
here  more  imperative,  while  the  supply  is  more  uncertain, 
more  open  to  accident.  Hence,  in  this  department,  the 
vacillation  of  price  is  much  more  rapid  and  extended  than 
in  manufactured  products. 

Some  commodities  are  exposed  to  a  violent  change  in 
the  demand.  In  time  of  war,  the  implements  of  warfare 
may  bear  an  extravagant  price,  and,  in  a  protracted  peace, 
be  of  little  worth.  Those  who  guide  fashion  avail  them- 
selves largely  of  this  principle.  No  sooner  has  the  market 
had  time  fully  to  supply  itself,  and  price  to  be  reduced  to 
its  ordinary  level,  than  the  fashion  is  changed,  and  the 
price  restored  by  a  new  monopoly.  Those  who  are  at  the 
head  of  the  movement  ever  find  the  demand  in  advance 
of  the  supply,  and  reap  a  heavy  harvest ;  those  who  are  in 
the  rear  find  the  supply  of  an  antiquated  article  by  far  too 
great,  and  are  suffering  perpetual  loss.  The  loss  undoubt- 
edly largely  compensates  the  gain ;  but  frequently  they  do 
not  fall  to  the  same  persons.  He  who  makes  the  wake 
sails  safely,  while  he  who  follows  is  ingulfed. 

There  is,  in  this  very  rise  of  demand,  and  with  it  of 
price,  a  tendency  to  check  the  movement  which  it  inau- 
gurates, and  to  restore  the  level  which  it  destroys.  Each 
rise  of  price  quickens  all  producers,  and,  if  great,  crowds 


210  POLITICAL  ECONOMY. 

them  to  their  utmost  effort,  that  these  prices  may  be  real- 
ized. Bat  this  new  supply  checks  the  rise  and  restores 
the  level.  At  the  same  instant,  also,  that  high  prices 
invite  producers,  they  restrain  consumers,  and  struggle,  on 
either  hand,  to  restore  price  to  its  natural  value.  So,  also, 
when  prices  have  fallen,  production  is  checked  and  con- 
sumption is  quickened. 

These  forces  rapidly  increasing,  as  the  rise  or  fall  of 
price  becomes  great,  shortly  overpower  and  reverse  the 
movement.  Natural  value  is  the^  gravitating  point,  and 
thither  self-adjusting  forces  push  the  price. 

Here,  as  elsewhere  in  these  discussions,  a  free  market 
in  which  each  is  alive  to  his  own  interest,  is  the  tacit 
assumption.  In  the  ordinary  retail  business,  there  may  be, 
and  usually  is,  not  merely  two,  but  many  prices  in  the 
same  market.  Indolence,  ignorance,  fashion,  and  the  van- 
ity of  seeming  carelessness  on  the  part  of  the  purchasers, 
together  with  fraud  on  the  part  of  sellers,  may  occasion  a 
great  variety  of  price.  Some  are  willing  to  pay  for  the 
privilege  of  purchasing  on  a  certain  street,  or  at  a  particu- 
lar store;  and  most  form  habits  of  purchase  which  pre- 
clude an  extensive  survey  of  the  market.  Time,  also,  is 
always  required  for  any  increased  demand  to  be  felt  through 
the  market,  and  there  will,  while  price  is  in  a  state  of  tran- 
sition, be  a  variety  of  sales  which  do  not  tally  exactly  with 
the  existing  state  of  things.  Also,  a  movement  here,  as 
elsewhere,  is  seen  to  acquire  a  momentum,  which  carries 
it  beyond  the  forces  at  work.  These,  however,  are  no 
more  than  wind  ripples,  which  do  not  modify  the  great 
tidal  movements. 


VALUE.  241 

$  7.  The  third  class  of  commodities  —  those  not  capable 
of  increase,  or  of  but  very  limited  increase  —  is  meas- 
ured in  value  by  the  principle  of  supply  and  demand. 
Here  belong  many  works  of  art,  paintings  and  marbles ; 
all  products  of  genius  that  cannot  be  multiplied ;  superior 
gems,  and  rarities  of  every  kind. 

If  a  residence  in  a  city,  through  position  or  otherwise, 
possessed  of  peculiar  beauties  and  facilities,  is  to  be  sold, 
what  determines  its  price  ?  The  supply  is  limited  ;  there 
is  but  one  such  residence ;  the  demand  is  variable,  de- 
pending on  the  price.  If  it  were  to  be  offered  at  fifty 
thousand  dollars,  there  might  be  one  hundred  persons  who 
would  wish  it;  if  for  one  hundred  thousand  dollars,  twenty 
persons.  But  for  the  very  reason  that  one  hundred  wish 
it  at  the  first  price,  it  will  not  be  offered  at  that  price  ;  nor 
yet  at  the  second,  since-  twenty  still  wish  it  on  these 
harder  terms.  If  but  one  man  is  willing  to  give  five 
hundred  thousand  dollars,  while  a  second  man  would  give 
a  fraction  less  than  this,  it  will  rise  in  value  to  half  a  mil- 
lion, since,  at  this  price,  the  equation  of  supply  and  de- 
mand is  struck ;  there  is  one  building  and  one  purchaser, 
and  no  competition  to  force  the  price  higher.  Competition 
cannot  altogether  cease  till  the  demand  is  reduced  to  the 
supply,  and  price  must  therefore,  if  the  seller  is  deter- 
mined to  obtain  the  utmost,  rise  till  this  point  is  reached. 
Here  it  is  utility,  or  the  ability  to  gratify  desire,  that  seems 
to  measure  price.  The  aim  is  to  reach  the  highest  desire 
which  any  one  has  for  the  product,  and  to  fasten  the 
value  at  this  point.  By  means  df  competition,  this  is 
nearly  though  not  absolutely  done.     It  cannot  be  affirmed 

21 


242  POLITICAL   ECONOMY. 

that  the  purchaser  might  not  have  been  willing  to  give 
more,  but  it  can  be  affirmed  that  no  one  else  was  willing 
to  give  so  much.  The  space  between  the  first  and  second 
utility,  the  first  and  second  desire,  may  not  have  been  all 
travelled  over,  since,  the  moment  the  second  is  left  behind, 
there  is  no  competition  to  carry  the  price  forward.  The 
purchaser,  by  a  too  eager  desire,  may  place  himself  still 
further  in  the  hands  of  the  seller,  but,  in  truth,  from  that 
point  the  seller  is  as  dependent  on  the  purchaser  as  the 
purchaser  on  the  seller. 

Monopoly  values  are  very  nearly  allied  to  those  of  the 
third  class  of  products.  Those  enjoying  the  monopoly  of 
any  branch  of  industry,  by  limiting  the  supply,  force  up 
the  price  beyond  that  due  to  the  cost  of  production,  and 
might  do  so,  till  the  utility  of  the  commodity  to  the  last 
consumer  was  reached.  It  is  not,  however,  for  the  interest 
of  the  monopolist  to  raise  price  to  this  extent.  The  con- 
stant diminution  of  purchasers  more  than  compensates  for 
the  large  returns  on  that  which  is  sold.  A  reduction  in 
net  gains  of  one-half  might  much  more  than  double  the 
consumers,  and  hence  it  is  usual  for  monopolists  to  fur- 
nish what  they  themselves  conveniently  can,  and  suffer 
the  price  to  adjust  itself  to  this  supply;  and  this  adjust- 
ment will  be  effected  when,  by  the  rise  in  value,  the  de- 
mand has  suffered  the  same  reduction. 

$  8.  The  most  important  of  the  products  whose  value  is 
regulated  by  the  action  of  supply  and  demand  is  labor. 
Wages,  as  already  seen,  are  acted  on  through  the  compe- 
tition of  numbers,  either  on  the  side  of  laborers  or  capital- 


VALUE.  243 

ists.  It  has  been  said  that  durability  relieves  a  commodity 
from  any  rapid  depression  through  the  deficiency  of  de- 
mand :  it  should  also  be  pointed  out  that  this  very  circum- 
stance may  subject  certain  products  to  a  protracted  depres- 
sion in  value.  Houses  once  built  are  not  soon  removed 
from  the  market,  and  if  the  supply,  therefore,  is  excessive, 
it  may  remain  in  excess  for  many  years. 

If  two  commodities  are  the  joint  results  of  the  same 
process,  we  have  a  case  of  value  involving  both  cost  of 
production,  and  supply  and  demand.  The  sum  of  both 
values  must  be  such  as  to  repay  the  cost,  and  if  one  value 
is  large,  the  other  may  be  proportionately  small.  What  is 
to  decide  the  value  of  each  ?  With  a  saving  of  lumber, 
lath  and  boards  may  be  furnished  at  the  same  mill.  If, 
with  a  certain  demand  for  boards  and  the  price  resulting 
therefrom,  the  lath  cannot  be  sold  at  a  rate  to  render  their 
share  of  the  joint  value,  then  a  higher  price  must  be 
placed  on  the  boards.  This  will  somewhat  restrict  the 
demand  for  them,  and  consequently  lessen  the  number  of 
both.  Under  the  diminished  supply,  price  will  here  also 
rise,  and  this  process  must  continue  till,  by  their  mutual 
rise,  the  boards  and  the  lath  together  pay  their  joint  cost. 
As  the  demand  acts  upon  either  of  the  two  commodities, 
this  commodity  may  be  multiplied  till,  by  the  attendant 
reduction  of  price  in  itself  and  fellow,  the  cost  of  produc- 
tion has  been  reached.  The  supply  of  one  commodity 
must  be  checked,  either  when  increasing  or  decreasing,  at 
the  point  at  which  the  value  of  the  other,  acting  as  a 
supplement  to  its  own,  reaches  the  common  cost. 

In  agricultural  products,  the   demand  for  the   several 


244  POLITICAL   ECONOMY. 

kinds  of  grains  may  be  different,  and  hence  the  culture 
i breed  farther  in  one  kind  of  produce  than  in  another.  In 
this  case,  the  difference  between  the  most  favorable  and 
least  favorable  culture  will  be  greater  in  one  grain,  as 
wheat,  than  in  another,  as  corn.  If,  then,  all  soils  were  in 
their  capabilities  arranged  in  a  scale  having  two  points, — 
the  one  expressing  the  highest  fertility  in  wheat,  the 
second  the  highest  in  corn,  while  the  intervening  space 
marked  the  variety  of  adaptation  in  these  respects, — 
wheat  would,  on  the  present  supposition,  in  actual  culture, 
pass  beyond  the  middle  point,  and  occupy  ground  more 
favorable  to  corn  than  to  itself.  The  kind  of  soil,  then,  at 
which  two  grains  meet,  marks  their  relative  demand  and 
value.  We  close  this  chapter  with  a  recapitulation  of  the 
principal  propositions  involved  in  this  discussion  of  value. 


§  9.  1.  The  value  of  a  commodity  is  its  purchasing  power  —  its  ability 
to  command  other  commodities.  The  particular  value  of  a  com- 
modity is  its  power  of  purchase,  expressed  in  a  particular  product: 
price,  its  power  of  purchase  expressed  in  money.  There  can  be  no 
universal  rise  or  fall  of  values.  Each  rise  implies  a  corresponding 
fall,  and  each  fall  a  rise. 

2.  Utility  and  difficulty  of  attainment  ahcays  occasion,  but  do  not 
always  measure  value.  Value  may,  to  any  degree,  fall  below,  but 
cannot  rise  above  utility :  value  may  rise  above,  but  cannot  perma- 
nently fall  below  difficulty  of  attainment. 

3.  No  one  product  is  invariable  in  its  cost  of  production.  Hence,  there 
is  no  product  with  which,  comparing  other  products,  we  can  deter- 
mine their  changes.  There  is  no  fixed  point ;  changes  are  constant, 
and  general,  and,  though  the  relative  difference  is  obvious,  the  precise 
causes  which  have  occasioned  and  measured  it  are  not  so. 


VALUE.  245 

4.  Products  are,  in  reference  to  the  causes  which  determine  value, 
divisible  into  three  classes.  The  most  numerous  class  is  composed  of 
those  which  may  he  indefinitely  multiplied  without  increased  cost,  and 
includes  nearly  all  manufactured  articles;  the  second,  those  which 
are  multiplied  at  increased  cost,  and  includes  agricultural  products; 
the  third,  those  incapable  of  indefinite  increase,  and  includes  the 
remnant  of  products,  both  manual  and  natural. 

5.  Market  value  is  the  value  at  tvhich  products  are  for  the  moment 
exchanging ;  natural  value  is  the  value  to  tvhich  the  market  value 
tends  to  return,  and  through  which  it  oscillates. 

6.  In  the  first  class,  natural  value  is  measured  by  difficulty  of  attain- 
ment, and  is  the  comparative  cost  of  production.  Price  expresses, 
in  each  case,  the  actual  cost  of  production,  and  contains  some  ele- 
ments, which,  being  the  same  in  all,  do  not  affect  value,  or  the  com- 
parative cost  of  production. 

7.  Cost  of  production  is  made  up  of  wages  and  profits,  as  habitual 
elements  ;  of  taxes,  scarcity  values,  and  ground-rent,  appearing  in 
any  material  or  instrument  employed,  as  occasional  elements.  Com- 
parative cost  of  labor,  or  value,  depends  on  amount  and  kind  of 
labor,  as  its  chief  element,  and  on  the  variety  in  time  and  risk  of 
capital,  as  a  secondary  element.  The  occasional  elements  are  the 
same  in  value  as  in  price. 

8.  Wages  do  not  affect  the  comparative  cost  of  production.  High 
wages  do  not  advance  either  value  or  price.  Difference  of  wages 
affects  the  products  between  which  this  difference  obtains.  Rate  per 
cent,  affects  value,  so  far  as  there  is  inequality,  and  this  inequality 
exists  in  three  respects,  —  in  risk,  in  time,  in  buildings  and  machinery. 
Increase  in  risk  and  time  enhances  value.  On  a  rise  in  the  rate  per 
cent.,  those  products  rise  in  value  into  whose  manufacture  there  enters 
more,  or  more  permanent  machinery.  High  profits  do  not  occasion 
high  values  or  high  prices. 

9.  If  the  amount  of  the  labor  is  the  same,  and  the  time  and  risk  of 
capital  the  same,  whether  wages  and  profits  are  high  or  low,  the  com- 
modities so  produced  will  exchange  for  each  other. 

21* 


246  POLITICAL   ECONOMY. 

10.  The  amount  of  labor  is  always  the  leading  element  in  value,  and 
the  more  so  as  the  rate  per  cent,  falls. 

11.  The  equation  of  supply  and  demand  is  the  law  of  market  value. 

1  2.  In  the  second  class  of  products,  cost  of  production  is  still  the 
measure  of  value,  though  it  is  no  longer  the  cost  of  all  products,  but 
only  that  of  the  most  costly  part  of  each  kind  really  demanded.  Rent, 
though  paid  in  price,  does  not  enhance  it. 

13.  The  third  class  of  products  find  their  measure  of  value  in  the  equa- 
tion of  supply  and  demand.     Scarcity  value  rests  on  utility. 

14.  In  cases  of  joint  production,  one  of  the  commodities  —  usually  that 
for  which  there  exists  the  greatest  demand  —  rises  or  falls  in  price, 
till  the  joint  prices  meet  the  joint  cost. 


CHAPTER   II. 


FOREIGN  TRADE. 


$  1.  Foreign  trade  presents  so  many  modifications  of  the 
principles  of  exchange,  applicable  to  the  markets  of  a 
single  country,  as  to  require  special  treatment.  The  im- 
mediate motives  to  trade  are  its  gains;  but  these  are  far 
from  being  its  leading  financial  advantages.  There  is  a 
broad  variety  between  different  parts  of  the  earth,  and 
different  nations,  in  the  kind  of  commodities  produced,  and 
the  facility  with  which  the  same  commodities  are  produced. 
Setting  aside  carriage,  each  nation  is  benefited,  to  the  ex- 
tent of  this  difference ;  nor  is  the  merchant,  in  a  well 
established  trade,  able  to  secure,  as  returns,  but  a  fractional 
part  thereof — a  part  sufficient  to  reward  the  labor  and  risk 
undertaken  in  the  transfer.  By  trade,  each  nation  avails 
itself  of  the  advantages  and  resources  of  the  whole  earth, 
and  enters  in  for  a  share  of  the  blessing  bestowed  on 
every  soil,  clime,  and  people.  It  feels  also  the  stimulus  of 
every  form  of  industry;  not  only  rival  industry,  but  that 
which,  crowding  its  markets  with  new  utilities,  new  enjoy- 
ments, invites  and  draws  out  its  purchasing  power.  Com- 
merce keeps  in  lively  motion  all  the  wheels  of  industry, 
and  supplies  both  the  motives  and  means  to  a  large  share 
of  production.      And  yet  all  these  immediate  industrial 


248  POLITICAL  ECONOMY. 

advantages  are  but  secondary  to  those  social  and  intellec- 
tual advantages  which  it  confers,  and  also  to  those  higher 
productive  resources,  the  necessary  results  of  this  quick- 
ened intelligence.  That  petty  jealousy  which  restricts 
intercourse  is  its  own  punishment,  and  that,  not  so  much 
in  what  is  immediately  lost,  as  in  what  would  otherwise 
have  been  gained.  The  ignorance  of  such  a  nation,  how- 
ever, is  too  often  sufficient  to  conceal  its  loss,  and  disarm 
its  rebuke. 

§  2.   In  any  country,  it  is  not  the  absolute,  but  the  relative  cost  of  its 
products,  which  determines  its  foreign  trade. 

This  is  a  radical  proposition,  and  gives  us  most  that  is 
distinctive  in  this  branch  of  exchange.  The  articles  ob- 
tained abroad,  in  exchange  for  those  carried,  are  brought 
to  the  home  market,  and  the  question  there  is,  not  whether 
the  products  so  obtained  have  actually  been  manufactured 
by  less  labor  or  more  labor  than  that  which  has  been  given 
in  exchange  for  them,  but  whether  at  home  they  would 
have  cost  less  or  more  labor.  If  they  would  have  cost 
less  labor  than  that  which  has  been  given  for  them,  then  a 
loss  is  suffered ;  if  more,  a  gain  is  secured.  Setting  aside 
carriage,  if,  in  France,  certain  silk  goods  costing  ten  days' 
labor  were  carried  to  England,  and  there  sold  for  cotton 
goods  costing  eight  days'  labor,  and  then  returned  to 
France,  it  does  not  follow  that  the  voyage  has  been  a 
losing  one.  If  the  cotton  goods  could  have  been  secured 
in  France  for  eight  days'  labor,  there  is  indeed  a  loss  of 
two  days'  labor;  but  if  they  would  have  cost  twelve  days' 
labor,  there  is  a  gain  of  two  days'  labor.     If  cotton  goods 


FOREIGN   TRADE.  249 

in  England  are,  relative  to  France,  manufactured  cheaper 
than  silk  goods,  then  a  mutually  profitable  trade  could  take 
place  between  these  countries,  in  these  articles,  though 
the  absolute  cost  of  both  cotton  and  silk  be  much  greater 
in  France  than  in  England.  The  French  merchant  buys 
in  England  to  sell  in  France;  and  it  is,  therefore,  the 
French,  and  not  the  English  market,  which  determines  his 
profit,  —  the  home  cost  of  that  which  he  brings  back,  com- 
pared with  I  he  home  cost  of  that  which  he  took  away.  If 
we  had  three  scales,  expressing  the  relative  cost  of  pro- 
ducts in  England,  France,  and  the  United  States,  respec- 
tively, we  should  be  able  to  see  what  kind  of  exchanges 
could  be  profitably  undertaken  between  them ;  nor  would 
a  cost  of  labor,  varying,  in  these  three  countries,  in  the 
ratio  of  one,  one  and  a  half,  and  two,  at  all  affect  the 
result.  It  would  be  possible,  though  certainly  not  proba- 
ble, that,  in  a  certain  product,  a  country  might  command 
the  markets  of  the  world,  though  its  absolute  cost  of  pro- 
duction were  greater  there  than  anywhere  else.  •From  this 
proposition,  certain  important  conclusions  follow. 

High  wages,  or  profits,  or  both,  in  any  country,  do  not 
affect  its  foreign  trade,  or  limit  its  ability  to  compete  with 
other  nations  of  a  lower  wage  or  profit.  If  England  brings 
goods  into  an  American  market,  manufactured  by  labor 
receiving  a  less  compensation  than  our  own,  she  cannot, 
for  that  reason,  undersell  us ;  for,  if  her  merchants  were 
for  this  reason  to  receive  less  in  return,  they  would  find 
that  this  smaller  return  would  not,  in  an  English  market, 
bear  a  price  based  upon  American  wages,  but  one  reduced 
to  the  standard  of  their  own  labor. 


250  POLITICAL   ECONOMY. 

Which  of  two  nations  shall  undersell  the  other,  in  the 
ports  of  a  third,  is  a  matter  of  relative,  and  not  absolute 
cost :  she  who  pays  the  most  for  labor,  may  undersell  her 
who  pays  the  least. 

That  country  whose  labor  is  most  efficient  secures  all 
its  foreign  commodities  at  the  least  cost.  It  is  the  articles 
which  America  produces  with  peculiar  facility  that  she  ex- 
ports ;  and  these,  commanding  foreign  products,  not  accord- 
ing to  the  labor  they  have  cost  in  America,  but  according 
to  what  they  would  have  cost  in  the  country  where  the 
exchange  takes  place,  may  give  a  return  cargo,  represent- 
ing a  much  larger  amount  of  foreign  labor,  than  the  out- 
ward bound  vessel  contained  of  home  labor.  Whatever 
was  the  original  cost  of  production  in  these  foreign  com- 
modities, we  have  purchased  them  as  cheaply  as  if  manu- 
factured by  our  own  most  efficient  labor,  and  this  often 
with  the  additional  reduction  of  a  profit. 

As  the  advantage  of  trade  between  nations  depends  on 
the  relative  superiority  at  different  points,  foreign  com- 
merce can  only  be  the  most  efficient  means  of  the  com- 
mon good,  when  each  nation  aims  at  the  most  thorough 
development  of  its  own  peculiar  resources.  An  effort,  on  the 
part  of  any  nation,  which  aims  to  equalize  its  success  in  all 
directions,  and  make  it  a  competitor  with  every  other  nation 
in  each  respect,  so  far  incapacitates  it  for  profitable  foreign 
trade,  and  forfeits  the  command  of  the  world's  products, 
given  it  in  its  own  best  capability,  when  fully  drawn  out. 

§  3.  We  have  already  had  occasion  to  introduce  the 
equation  of  international  demand,  but  have  now  arrived  at 


FOREIGN    TRADE.  251 

a  point,  at  which  we  can  more  clearly  see  the  principle 
involved  therein.  A  portion  of  foreign  commerce  is  the 
transfer  of  commodities,  which  can  only  be  successfully 
produced  in  the  countries  from  which  they  are  exported ; 
cotton,  coffee,  tea,  and  sugar,  are  of  this  class.  If  any  one 
country  has  a  monopoly  of  such  a  product,  the  value  which 
it  will  have  in  foreign  markets  must  depend  on  the  princi- 
ple of  supply  and  demand ;  a  scanty  supply  may  keep  it 
perpetually  above  the  cost  of  production;  a  large  supply 
may  reduce  it  to  that  standard.  This  last  will  also  be  the 
result,  when  several  countries  compete  with  each  other, 
in  the  world's  market,  for  furnishing  such  a  commodity. 
Whenever  the  tract,  on  which  a  plant  can  be  reared, 
is  large  enough  to  furnish  the  world,  unless  its  production 
is  straitened  through  some  governmental  restriction,  the 
price  must  shortly  sink  to  the  cost  of  production.  In  all 
these  cases,  the  countries  which  consume  the  commodity 
reap  their  advantage,  not  in  reduced  values,  but  in  a  new 
utility,  a  gratification,  for  which  they  might  be  willing  to 
pay  much  more  than  it  costs  them. 

Another  large  portion  of  foreign  trade  is  in  articles 
which,  though  they  may  be,  and  perhaps  are,  produced  at 
home,  are  produced  with  relatively  greater  difficulty  than 
abroad.  It  is  in  these  products  that  the  gains  of  interna- 
tional trade  are  most  readily  susceptible  of  measurement. 
This  subject  is  best  seen  in  an  example,  though  one  purely 
hypothetical.  If  ten  bushels  of  wheat,  in  France,  repre- 
sent the  same  labor  as  ten  gallons  of  wine,  and  command 
in  the  market  this  quantity,  while  in  America  they  only 
represent   the   labor  of   five   gallons,  and   purchase   this 


252  POLITICAL   ECONOMY. 

amount,  then,  in  reference  to  wheat,  the  culture  of  the 
vine  is  by  twice  more  advantageous  in  France  than  in 
America;  and  the  culture  of  wheal,  in  reference  to  the 
vine,  by  twice  more  advantageous  in  America  than  in 
France.  If  a  trade  were  commenced  in  these  articles, 
the  whole  advantage  —  setting  aside  carriage  —  expressed 
in  wheat,  would  be  five  bushels  in  every  five  gallons  of 
wine ;  and  expressed  in  wine,  five  gallons  in  every  ten 
bushels  of  wheat.  Confining  the  expression  to  the  last 
commodity,  how  shall  this  advantage  of  five  gallons  be 
divided  between  the  two  nations  ?  If  the  demand  for 
wine  in  America  is  equal  to  that  for  wheat  in  France, 
equally,  and  henceforward  ten  bushels  will  command 
nearly  seven  and  one-eighth  gallons  — -  the  fraction  is 
something  more  —  in  the  one  place,  and  seven  and  one- 
eighth  gallons,  ten  bushels  in  the  other,  securing  a  gain  of 
forty-three  per  cent,  in  the  price  of  wine  in  France,  and  of 
wheat  in  America;  for,  if  not,  suppose  that  the  American 
obtains  nine  gallons  for  ten  bushels.  In  this  case,  by  the 
reduced  price  on  the  one  side,  and  the  increased  price  on 
the  other,  the  demand  for  wine  in  America  would  be 
greatly  in  excess  of  that  for  wheat  in  France ;  since,  ac- 
cording to  the  conditions  of  our  supposition,  they  are  equal 
at  ten  bushels  for  seven  and  one-eighth  gallons.  As  a 
result  of  this  excess  of  demand  on  the  one  side,  and  want 
of  it  on  the  other,  the  French  merchant  would  wish  to  stop 
the  trade  much  quicker  than  the  American  merchant ;  and 
the  latter,  to  induce  further  exchanges,  would  be  compelled 
to  offer  more  favorable  conditions.  Suppose  these  to  be 
ten  bushels  for  eight  gallons,  trade  would  again  proceed  on 


FOREIGN   TRADE.  253 

this  basis  for  a  time  ;  but,  as  the  demand  is  not  yet  equal- 
ized, there  would  come  a  time  when  wheat,  in  reference 
to  wine,  would  be  heavy,  and  a  further  fall  be  necessary. 
The  only  price  that  could  put  the  forces  in  equilibrium 
would  be  ten  bushels  for  seven  and  one-eighth  gallons,  and 
this,  when  the  market,  by  successive  falls,  had  found  its 
true  state,  must  be  the  final  price. 

Suppose,  however,  that  the  demand  for  wine  is  greater 
in  America  than  for  wheat  in  France.  In  that  case,  if  the 
exchange  started  as  before,  the  value  of  wheat  in  wine 
must  rapidly  decline,  not  simply  till  it  had  reached  1he 
point  of  equal  division,  but  considerably  below  it.  It  must 
decline,  till,  by  the  enhanced  value  of  wine,  the  demand 
for  it  is  so  reduced  as  to  equal  the  demand  for  wheat,  in 
the  meantime  enlarged  by  a  corresponding  fall  of  price. 
If  this  equation  is  secured  at  ten  bushels  for  six  gallons, 
at  that  price  there  will  be  no  motive,  on  either  side,  to 
offer  better  terms,  and  no  ability,  on  either  side,  to  demand 
better  terms.  The  American  cannot  require  more  wine ; 
for,  if  he  does,  there  comes  a  time,  before  his  complement 
of  wine  is  secured,  in  which  his  wheat  is  not  wanted ;  to 
take  less,  would  be  causelessly  to  reduce  profits.  The 
demand  for  wheat  remaining  the  same,  the  more  he  wants 
of  wine,  the  more  he  must  pay  for  it ;  the  less  he  wants 
of  it,  the  cheaper  he  can  get  it. 

From  the  equation  of  supply  and  demand,  we  see  that 
the  advantages  of  any  trade  are  divided  between  two 
nations,  in  the  inverse  ratio  of  their  demand.  This  is  true, 
not  only  in  the  exchange  of  two  articles,  but  in  the  mixed 
exchange  of  all  articles ;  inversely,  as  the  balance  of  de- 

22 


254  POLITICAL  ECONOMY. 

mancl  will  be  the  balance  of  profit;  she  who  has  the 
larger  and  most  urgent  wants,  must  draw  out  her  neighbors 
with  a  corresponding  bonus. 

No  nation  can  entirely  expel  another  from  the  markets 
of  a  third,  till  she  has  so  lowered  the  price  as  to  cut  below 
the  last  remnant  of  advantage  remaining  to  the  expelled 
party,  under  the  equation  of  international  demand.  Amer- 
ica could  not,  on  the  above  supposition,  be  driven  from  the 
wine  market  of  France,  till  ten  bushels  or  more  of  wheat 
were  offered  for  five  gallons  of  wine. 

§  4.  If  any  improvement  occurs  in  the  production  of  an 
article  previously  exported,  the  gains  to  be  divided  be- 
tween the  two  parties  are  increased.  We  will  suppose 
that,  by  the  application  of  new  methods  in  the  culture  of 
the  vine,  the  price  of  wine  is  so  reduced  in  France,  as  that 
twelve  gallons  now  exchange  for  ten  bushels  of  wheat, 
while  the  relative  condition  of  the  two  kinds  of  tillage  is 
unaltered  in  America.  In  that  case,  the  gains  are  raised 
from  five  to  seven  gallons ;  and  the  division  will  proceed 
on  the  same  principles,  being  equal  if  the  demand  is  equal ; 
otherwise,  the  portions  will  be  in  the  inverse  ratio  of  the 
respective  demands.  A  foreign  nation  may  therefore  se- 
cure the  same,  or  even  a  larger  share  of  the  results  of  any 
improvement,  than  the  nation  whose  improvement  it  is. 
This  improvement,  if  it  is  to  affect  the  exchange,  must  be 
confined  to  one  of  the  commodities.  If  wheat  and  wine 
were  both  and  equally  cheapened  by  it,  it  would  not  alter 
the  conditions  of  the  exchange.  Also  the  cheapening  of 
any  commodity,  as  wine,  might  vary  the  previously  exist- 


FOREIGN   TRADE.  255 

ing  relations  of  demand  between  it  and  wheat,  and  thus 
affect  the  international  division.  That  the  exchange  may 
remain  the  same,  not  only  must  the  demand  for  wine  in- 
crease, but  so  increase,  that,  at  its  reduced  price,  as  much 
wheat  shall  be  sent  to  the  market  in  pursuit  of  it  as  be- 
fore ;  otherwise,  the  demand  for  wheat  would  not  be  met, 
or  would  be  left  in  excess.  If  America  does  not  purchase 
the  cheapened  article  to  the  extent  of  the  same  number 
of  bushels  of  wheat,  the  price  must  fall  still  further  to 
induce  the  exchange,  and  a  larger  share  of  the  advantage 
than  formerly  be  surrendered  by  France. 

If  we  introduce  now  the  element  of  carriage,  we  shall 
find  that,  in  many  bulky  articles,  this  either  destroys  or 
goes  far  to  compensate  the  advantages  of  traffic;  that 
much  is  produced  at  home  which,  were  it  not  for  this  bur- 
den, would  be  brought  from  abroad.  A  trade,  which  still 
remains  profitable,  will  be  reduced  in  its  returns  to  the 
extent  of  the  cost  of  transfer,  and  this  cost  may  be 
divided  between  the  parties  in  the  ratio  of  the  previous 
division  of  profits,  —  that  is,  in  the  ratio  of  the  parts 
which  we  have  seen  to  fall  to  each,  on  the  supposition 
that  there  was  no  expense  of  carriage,  —  that  is,  in  the 
inverse  ratio  of  the  demand.  This  is  likely  to  be,  but  is 
not,  necessarily,  the  method  in  which  this  burden  will  be 
shared.  The  price  of  both  commodities  will  be  raised  by 
it,  and,  if  the  demand  for  each  is  equally  affected  by  this 
rise,  the  relation  between  the  two  demands  will  remain 
the  same,  and  the  ratio  of  division  the  same.  In  that 
case,  each  will  bear  the  cost  of  carriage  in  the  ratio  of  its 
share  of  advantage ;  if  that  share  be  one-fourth,  one-third, 


256  POLITICAL   ECONOMY. 

and  one-half,  then  its  portion  of  the  expense  of  transfer 
will  be  one-fourth,  one-third,  and  one-half.  But,  as  the 
value  of  each  article  is  raised,  wine  may  command  less 
wheat  in  France  than  before,  or  wheat  less  wine  in 
America. 

The  demand  for  these  articles  may  be  unequally  af- 
fected by  the  rise ;  the  demand  for  wheat  may  be  more 
retrenched  than  that  for  wine,  or  the  reverse.  In  either  of 
these  cases,  the  equation  of  international  demand  must 
readjust  itself;  and  according  to  the  new  division  of  ad- 
vantage will  be  the  division  of  cost.  Each  case  may  there- 
fore be  affected,  to  a  slight  extent,  differently,  by  the  intro- 
duction of  any  new  expense,  like  that  of  the  transfer  into 
the  supposition. 

In  the  traffic  of  wine  and  wheat,  if  the  demand  was 
equal,  we  saw  that  the  exchange  would  settle  in  each 
country  at  ten  bushels  for  seven  and  one-eighth  gallons. 
If  now  the  price  of  transfer,  in  the  case  of  wheat,  is  one 
bushel  in  every  ten  bushels,  and,  in  that  of  wine,  one-half 
gallon  in  every  seven  and  one-eighth  gallons,  ten  bushels, 
arriving  at  France,  will  be  reduced  to  nine  bushels ;  and  if 
the  carriage  were  to  stand  against  the  French  merchant, 
the  exchange  in  France  would  be  nine  bushels  for  seven 
and  one-eighth  gallons.  On  the  other  hand,  seven  and 
one -eighth  gallons,  landed  in  America,  would  be  reduced 
to  six  and  five-eighths ;  and  if  they  are  to  obtain  the  same 
value  as  before,  —  the  merchant  ordering  wine  meeting 
the  charge  thereon  —  six  and  five-eighths  gallons  will  pro- 
cure ten  bushels  of  wheat.  But  our  supposition  was,  that 
the  demand  for  wine  iu  the  one  country  was  equal  to  that 


FOREIGN   TRADE.  257 

for  wheat  in  the  other;  and,  therefore,  the  advantage  of 
traffic  should  be  equally  divided ;  but  the  charge  of  car- 
riage on  wheat,  in  proportion  to  its  value,  being  greater 
than  that  on  wine,  if  France  is  to  pay  the  whole  of  the 
first,  and  America  only  the  second,  the  equilibrium  is  dis- 
turbed,— France  losing  one  bushel  in  every  ten,  and  Amer- 
ica one-half  gallon  in  every  seven  and  one-eighth.  Wheat 
has  risen  a  little  more  than  eleven  per  cent.,  while  wine 
has  risen  something  less  than  eight  per  cent.  The  de- 
mand, therefore,  tending  to  an  equality,  only  at  an  equality 
of  advantage,  would  have  gone  down  for  wheat,  and  ad- 
vanced for  wine  ;  hence,  the  price  of  the  latter  must  be 
advanced,  and  that  of  the  former  be  reduced,  till,  meeting 
in  an  equal  division  of  the  new  burden,  the  equilibrium  is 
restored.  Carriage  may  be  considered  as  so  much  added 
to  the  cost  of  production,  and  as  so  much  reducing  the 
gains  of  trade.  Before,  these  were  five  gallons ;  they  will 
now  have  fallen  to  three  and  three-fourths  gallons,  and 
these  gains  are  again  to  be  so  divided,  that  the  fall  in  the 
rate  per  cent.,  according  to  the  capital  invested  in  each 
kind  of  production,  shall  be  the  same.  This  fall  in  profits, 
or  rise  in  the  value  of  wheat  in  France,  and  of  wine  in 
America,  will  be  in  round  numbers  nine  per  cent. ;  and 
ten  bushels,  which  before  commanded  in  France  but 
seven  and  one-eighth  gallons,  will  now  command  less 
than  seven  and  three-fourths  gallons ;  and  seven  and  one- 
eighth  gallons,  which  before  commanded  in  America  ten 
bushels  of  wheat,  will  now  command  ten  and  nine-tenths 
bushels.  Wheat  has  risen  in  reference  to  wine  in  the  one 
country,  and  wine,  in  reference  to  wheat  in  the  other ;  but 

22* 


258  POLITICAL  ECONOMY. 

the  equality  of  demand  remaining,  the  rate  per  cent, 
through  which  this  new  burden  is  met,  is  the  same  for 
each,  namely,  nine  per  cent.  If  there  should  be  any  varia- 
tion occasioned  in  the  demand,  either  through  the  higher 
prices  now  arising,  or  any  other  cause,  the  rates  per  cent, 
dividing  the  cost  of  transfer  would  be  to  each  other  in  the 
inverse  ratio  of  the  demand,  —  these  demands  universally 
measuring  themselves  in  the  portions  obtained  of  the  com- 
mon gain.  The  awkwardness  of  fractions  will  vanish 
when  both  commodities  have  their  value  expressed  in 
money,  with  its  accurate  subdivisions. 


CHAPTER   III. 

MONEY. 

$  1.  The  laws  of  production  and  distribution  are  not 
affected  by  money,  as  an  instrument  of  exchange.  All 
that  has  hitherto  been  said,  without  reference  to  money,  is 
equally  true  when  this  new  element  is  introduced.  Money 
is  only  an  instrument  by  which  a  process,  previously  the 
same  in  kind,  is  made  more  perfect  and  rapid.  The  princi- 
ples of  barter,  or  the  direct  exchange  of  product  for  pro- 
duct, control  the  phenomena  of  Political  Economy,  equally 
with,  as  without,  this  new  medium  of  transfer.  Having 
seen  the  agents  of  production,  and  the  laws  of  distribution, 
in  their  action  under  these  principles,  we  are  now  prepared 
to  understand  the  nature  and  office  of  money. 

Money,  in  any  country,  is  that  product,  or  those  pro- 
ducts, in  the  form  which  custom  or  law  assigns  them, 
which  have  become  an  established  medium  of  exchange. 

In  cultivated  nations,  some  one  or  more  of  the  metals 
have  constituted  the  basis  of  the  currency,  usually  aided, 
in  a  greater  or  less  degree,  by  paper  money  —  an  indebt- 
edness certified  on  paper.  The  currency  of  a  country  is 
its  circulating  medium,  in  all  the  variety  of  its  established 
and  legalized  forms,  —  is  its  gross  amount  of  all  forms  of 
money.      Among  all   instruments,  none   meet   a  greater 


260  POLITICAL   ECONOMY. 

variety  of  wants,  and  save  more  labor,  than  money.  It 
substitutes  a  general  for  a  particular  purchasing  power. 
He  who  is  possessed  of  a  particular  article,  and  wishes  to 
exchange  it  for  another,  must  not  merely  find  a  person 
possessed  of  the  second  article,  but  one  both  possessed  of 
it  and  wishing  to  barter  it  for  the  first.  Each  has  only  the 
limited  purchasing  power  of  his  own  commodity,  still  fur- 
ther restricted  by  the  necessity  of  finding  another  whose 
desires  are  the  precise  counterpart  of  his  own.  An  inter- 
mediate agent,  like  the  merchant,  would,  indeed,  in  part 
relieve  this  embarrassment ;  but  it  is  only  through  money 
that  each  comes  into  possession  of  an  agent  possessed  of 
a  general  purchasing  power,  that  can  command  everything 
everywhere.  It  is  sufficient  for  the  seller,  that  his  own 
product  is  anywhere  wanted ;  this  want,  through  the  mer- 
chant, represents  itself  at  his  own  door,  or  in  his  own  com- 
munity, and,  to  the  extent  of  the  value  of  the  product,  he 
receives  that  which  commands  any  utility  he  may  choose. 
As  the  wheel  of  exchange  revolves,  he  puts  on  anything 
he  will,  and  receives  a  ticket  which,  to  the  amount  on  its 
face,  allows  him  to  take  off  from  that  wheel  anything  that 
he  will.  His  particular  commodity  gave  him  an  order  on 
some  as  yet  unknown  person,  who  should  possess  what  he 
wished,  and  was  willing  to  receive  this  product  in  return. 
This  order  is  now  changed  into  a  general  order,  and  may 
be  presented  to  any  person  at  pleasure. 

Money  also  generalizes  the  purchasing  power,  not  only 
in  place,  but  in  time.  A  perishable  commodity  is  ex- 
changed for  an  imperishable  medium,  and  the  powTer  of 
purchase  locked  up  in  this  form  may  be  retained  at  the 


MONEY.  261 

pleasure  of  the  holder.  It  also  condenses  and  makes 
divisible  that  power.  A  crowded  barn  may  have  a  less 
command  of  utilities  than  a  moderately  filled  pocket-book  ; 
and  the  house,  which  was  one  in  the  sale,  may  now,  in 
the  money  which  represents  it,  divide  itself  many  hundred 
times,  and  roam  in  all  directions  in  search  of  enjoyments. 
Money,  in  the  hand  of  the  holder,  is  a  pliant  agent,  that 
unites  or  divides  its  forces  as  the  exigency  demands.  It 
is  an  industrious  agent,  which  works  at  all  times.  If  a 
man  had  wheat,  there  would  be  but  a  naked  chance  that 
he  should  find  some  one  willing  to  loan  it,  and  return  it 
with  interest ;  probably  he  would  be  compelled  to  keep  it, 
with  waste  and  damage;  transmute  it  into  money,  and 
from  that  hour  it  may  earn,  and,  like  a  faithful  slave,  will 
pay  in  its  wages.  If  there  were  a  hundred  commodities, 
all  in  equal  demand,  the  chance  that  he  who  possessed 
one  could  make  a  loan,  would  be  represented  by  one ; 
while  his  chance  who  possessed  money,  and  thereby  com- 
manded them  all,  would  be  represented  by  one  hundred. 
Hence,  almost  all  loans  take  place  in  money. 

Money  is  the  constant  medium  in  which  values  are 
expressed  and  balanced.  Through  money,  the  whole 
exchange  of  products,  in  all  their  varieties,  comes  under 
the  measurement  of  one  table,  and  everything  resolved 
into  dollars  and  cents  is  rapidly  weighed  with  every  other. 
Without  this,  no  accuracy,  no  uniformity,  no  general  mar- 
ket price,  could  well  be  secured  in  the  transfer  of  values. 
How  one  product  should  exchange  for  any  one  of  all  pro- 
ducts, would  present  a  distinct  problem,  in  many  instances 
difficult  of  solution.      We  have  now  but  to  resolve  this 


262  POLITICAL   ECONOMY. 

question  in  one  direction,  and  accuracy  here  avails  for 
accuracy  everywhere.  "When  we  know  how  much  gold 
a  thing  has  cost,  or  will  command,  we  tacitly  know  its 
complete  purchasing  power,  in  products  familiar  to  us. 
Mercantile  education  is  largely  no  other  than  this  —  an 
extensive  resolution  of  all  values  into  that  of  money, 
and  hence,  by  ready  inference,  of  values  into  each  other. 
The  price  of  a  commodity  fixed,  it  instantly  takes  its 
place  in  the  thoroughfare  of  commerce  a  well  under- 
stood and  calculable  member.  Money  acts  on  exertions 
as  the  thermometer  on  temperatures,  or  the  barometer  on 
atmospheric  pressures, —  it  measures  and  definitely  relates 
them ;  it  makes  them  arithmetical. 

$  2.  Corresponding  to  these  functions  of  money,  must 
be  the  qualities  of  that  product  which  is  to  discharge  them. 
That  it  may  condense  value,  it  must  itself  be  possessed  of 
a  high  value ;  that  it  may  render  value  divisible,  it  must  be 
capable  of  any  needed  division,  without  a  reduction  in 
value;  and,  in  order  that  it  may  be  convenient  in  the 
handling,  and  bear  its  value  on  its  face,  it  should  be  capa- 
ble of  receiving  any  desirable  form,  and  retaining  any  im- 
pression. Important  as  are  these  qualities  in  a  circulating 
medium,  it  is  yet  more  necessary  that  its  value  should  be 
uniform,  or,  since  tins  is  impossible,  subject  only  to  slight 
fluctuations.  The  measurement  and  comparison  of  values, 
at  one  time,  may  be  affected  by  a  product  itself  liable  to 
wide  changes,  but  cannot,  as  between  different  times. 
Though  the  traffic  of  the  hour  might  be  safely  carried  on 
in  such  a  medium,  it  could  not  meet,  with  even  tolerable 


MONEY.  263 

success,  the  exigencies  of  the  year,  or  of  a  series  of  years. 
The  property  of  many  persons,  and  of  many  institutions, 
is,  for  a  series  of  years,  expressed  in  the  currency  of  the 
country;  and  if  the  product,  which  is  the  basis  of  this 
currency,  is  to  be  constantly  cheapened,  —  that  is  to  say, 
its  command  of  all  other  products  constantly  reduced, — 
this  property,  though  not  in  name,  will,  in  reality,  be  cor- 
respondingly reduced.  Those  whose  wealth  is  invested  in 
real  estate,  or  in  any  form  of  commodities,  would  suffer  no 
loss,  while  those  whose  property  is  monetary  obligations, 
would  find  it  liable  to  constant  fluctuations.  A  debt,  at  the 
time  in  which  it  was  incurred,  might  have  one  value,  and 
at  the  time  of  payment,  a  very  different  value.  These 
considerations  make  the  causes  regulating  the  value  of 
money  of  the  highest  importance.  Vacillation  here  is 
vacillation  everywhere,  and  by  the  fitful  freaks  of  cur- 
rency the  whole  stream  of  commerce  is  broken  and 
fretted. 

The  precious  metals,  gold  and  silver,  have  been  found, 
in  the  highest  degree  of  any  known  substances,  to  combine 
the  qualities  requisite  in  a  circulating  medium.  Their 
high  value,  their  durability,  the  ready  manner  in  which 
they  receive  and  retain  the  legal  impress,  and  their  com- 
paratively uniform  value,  all  point  them  out  as  the  most 
substantial  and  pliant  basis  of  a  currency. 

§  3.  Money  is  a  product,  and,  like  all  products,  finds  its 
own  value  under  the  operation  of  the  principles  already 
pointed  out.  The  legal  stamp  does  not  occasion  the  value  ; 
it  only  marks  it ;  and  if  it  marks  it  either  above  or  below 


264  POLITICAL   ECONOMY. 

the  true  value,  —  that  value  which  the  natural  forces  at 
work  have  already  assigned  the  metal  contained  in  the 
coin,  —  only  the  utmost  despotism  can  establish  or  sustain 
this  factitious  value,  and  that  only  within  a  very  limited 
circle,  and  for  a  restricted  period.  The  two  measuring 
causes  of  value  are  cost  of  production,  and  supply  and 
demand.  Values,  as  dependent  on  supply  and  demand, 
are  usually  subject  to  much  wider  and  more  constant  fluc- 
tuations, than  those  arising  from  cost  of  production.  Any- 
thing, whose  supply  was  not  large  and  strictly  limited, 
might  have  sufficient  value  to  constitute  a  medium  of  ex- 
change. If  the  quantity  of  gold  now  in  the  world  were 
left  to  us,  but  all  further  supplies  cut  off,  it  would,  for  the 
time  being,  retain  its  present  value,  as  defined  by  the  cost 
of  production.  Shortly,  however,  as  the  quantity  came  to 
be  diminished,  by  loss  and  wear,  and  the  demand  for  it,  in 
the  currency  and  the  consumption  of  luxury,  to  be  in- 
creased, its  value  would  come  under  the  action  of  the 
equation  of  supply  and  demand ;  and  though,  by  increased 
value,  it  would  still  meet  and  discharge  all  the  functions 
of  exchange,  this  necessary  and  constant  rise  would  be  an 
element  of  perpetual  disturbance  and  error.  Even  irre- 
deemable paper  might,  within  the  limits  of  a  single  coun- 
try, have  circulation,  if  its  quantity  were,  by  arbitrary 
power,  so  limited  as  to  be  kept  constantly  within  the 
demand.  If  this  second  measure  of  value  is  to  be  the 
basis  of  a  currency,  it  is  by  no  means  necessary  that  the 
medium  should  have  any  intrinsic  utility,  or  utility  for  any 
other  purpose ;  it  is  sufficient  that  it  has  utility  in  this  one 
direction,  and  that  this  utility  is  forced  into  a  high  value 


MONEY.  265 

by  the  constant  action  of  demand  on  supply.  A  few- 
shells,  of  which  there  were  absolutely  no  more,  might 
come  to  have  more  value  than  gems ;  and  gems,  by  becom- 
ing a  part  of  the  currency,  might  be  greatly  increased  in 
value. 

This  limitation  might  be  either  natural  or  artificial.  If 
natural,  then  the  medium,  from  the  veiy  nature  of  the 
case,  as  the  demand  increased,  must  be  exposed  to  con- 
stant rise,  and  thus,  though  meeting  all  the  exchanges 
of  the  day,  through  the  increased  power  given  to  it  by 
the  rise,  it  would  be  unable,  as  between  different  peri- 
ods, to  affect  an  honest  transfer.  If  artificial,  as  in  the 
case  supposed  of  paper  money,  such  a  currency  could  have 
no  general,  no  foreign  circulation,  and,  through  the  mis- 
judgment  of  rulers,  would  fluctuate,  and,  through  their 
hope  of  gain,  would  become  worthless,  almost  as  soon  as 
established.  For  these  reasons,  no  commodity,  whose 
value  is  primarily  the  result  of  supply  and  demand,  is 
fitted  to  be  the  basis  of  currency.  Gold  and  silver  are  not 
so,  save  as  by  the  transitory  edicts  of  governments  they 
may  become  so.  Fluctuation  is  the  unavoidable  result  of 
such  a  measure  of  value.  The  market  fluctuations  of  all 
products  arise  under  its  action. 

$  4.  Cost  of  production,  on  the  other  hand,  may  afford  a 
very  uniform  value.  If  a  metal  is  obtained  from  a  large 
variety  of  places  ;  if  these  are  either  possessed  of  nearly 
equal  fertility,  or  constitute  a  scale,  in  which  the  difficulty 
of  attainment  passes  up  by  slight  and  nearly  regular  inter- 
vals, while  the  demand  is  such  as  to  keep  the  labor  of 

23 


266  POLITICAL  ECONOMY. 

production  constantly  employed  on  the  more  difficult  and 
uniform  mines ;  then,  it  is  evident,  that  a  cost  of  produc- 
tion, either  in  itself  uniform,  or  ranging,  in  its  higher  state, 
at  about  the  same  point  on  the  scale  of  difficulty,  would 
occasion  a  nearly  uniform  value.  Gold  and  silver  are  so 
obtained.  The  sources  are  many,  and  though  the  fertility 
of  some  of  the  more  favored  mines  may  make  them  the 
means  of  large  revenues,  the  demand  is  still  so  great,  as 
to  force  the  production  into  those  which  are  more  difficult 
and  more  uniform  in  their  returns.  All  great  fluctuations 
have  arisen  from  the  introduction  of  new  and  unexpected 
elements.  The  discovery  of  America,  by  the  large  amount 
of  the  precious  metals  already  accumulated  therein,  and 
the  greater  fertility  of  its  mines,  greatly  reduced  the  value 
of  gold  and  silver.  As  soon,  however,  as  these  new  re- 
sources became  practically  measured  and  wrought  into  the 
general  estimate,  a  value  nearly  firm  was  restored  to  these 
metals.  New  explorations  have,  down  to  the  very  present, 
occasioned  new  fluctuations.  But,  as  the  world  shall  be 
moro  thoroughly  known,  and  its  surface  harvest  gathered, 
the  cost  of  production  will  tend  to  greater  uniformity,  with 
a  corresponding  steadiness  of  value. 

The  value  of  gold  and  silver  rests  on  cost  of  production  ; 
but  it  is  that  cost  which  belongs  to  agricultural  products,  — 
the  difficulty  encountered  in  securing  the  most  expensive 
portion  of  these  products  actually  called  forth  and  justified 
by  the  demand.  The  multiplicity  of  mines  reduces  the 
shades  of  difference,  and  more  rapidly  checks  any  increase 
or  diminution  in  value.  By  any  rise  in  value,  mines  are 
rapidly  brought  into  the  circle  of  those  that  pay ;  by  any 


MONEY.  267 

fall,  are  as  rapidly  thrown  out.  The  more  multiplied  the 
sources  from  which  gold  and  silver  can  be  obtained,  the 
existing  scale  of  fertility  remaining,  the  greater  will  be 
the  constancy  of  their  value.  The  temporary  fluctuations, 
therefore,  occasioned  by  the  first  yield  of  new  fields  and 
new  mines,  when  they  have  spent  themselves,  leave  value 
on  its  new  basis  as  firm  or  firmer  than  before. 

A  great,  a  broad,  and  permanent  equality  of  difficulty  in 
obtaining  gold  and  silver,  if  not  resting  upon  the  whole, 
yet  resting  upon  some  portion  of  the  supply,  has  been  the 
basis  of  their  relatively  firm  value.  Of  the  three  classes 
of  products  divided  according  to  the  law  of  their  values, 
it  is  the  second,  or  agricultural  class,  that,  in  long  periods, 
presents  the  most  uniform  value.  Invention  cheapens 
them  less,  and,  when  the  demand  is  at  all  large,  as  in  the 
case  in  hand,  it  is  along  a  slight  slope  of  insensible  differ- 
ences that  the  value  is  rising  and  falling;  a  slight  vertical 
movement  tells  largely  on  the  supply.  There  are  other 
considerations  which  lend  firmness  to  the  precious  metals. 

The  large  amount  of  gold  and  silver,  now  constituting 
the  currency  of  civilized  nations,  acts  between  the  supply 
and  demand,  like  a  heavy  balance-wheel  between  the 
force  and  resistance,  reducing  all  sudden  impulses,  and 
retaining  an  equable  and  working  state,  when  the  power 
is  for  a  moment  withdrawn.  The  yearly  waste  and  the 
yearly  supply  are  both  very  small,  in  comparison  with  the 
accumulated  hoards  of  centuries,  and  any  increase  of  one 
or  diminution  of  the  other,  for  a  limited  period,  can  only 
affect,  by  a  very  slight  fraction,  the  relation  of  gold  and 
silver  to  the  uses  of  the  world.     The  gold  and  silver  of 


268  POLITICAL   ECONOMY. 

the  arts,  and  of  luxury,  the  plate  and  the  ornaments,  con- 
stitute a  reservoir,  from  which,  on  any  augmentation  of 
value,  a  supply  will  immediately  begin  to  flow,  and  to 
which,  on  any  reduction  of  value,  a  return  stream  will 
bear  away,  from  the  clogged  wheels  of  currency,  the 
superfluous  and  disturbing  element.  The  small  annual 
stream,  then,  which  keeps  good  the  supply  of  the  precious 
metals,  has  a  double  safeguard,  in  the  reservoir  which  the 
arts  afford,  whereby  to  make  equal  its  spring  tide  and  sum- 
mer flow,  and  also  in  the  very  weight  of  that  wheel  of 
currency  on  which  it  acts. 

Intimately  connected  with  their  amount,  and  an  occasion 
of  it,  is  the  durability  of  these  metals.  The  element  of 
supply  and  demand  cannot  be  much  varied  in  commodities 
which  are  so  durable,  since  the  great  mass  of  it  is  simply 
brought  forward  from  the  past.  If,  by  the  yearly  gain,  we 
mean  the  absolute  gain,  after  a  deduction  of  all  waste  and 
loss,  on  the  relation  of  this  gain  to  the  yearly  growth  of 
demand  in  the  currency  and  the  arts,  would  rest  the  per- 
manency of  value,  and  the  elastic  demand  of  the  arts 
would  enter  in,  to  reduce  and  deaden  the  oscillations  of 
the  currency. 

What  we  may  term  the  fluency  of  the  precious  metals 
is  also  an  element  of  stability  in  their  value.  Their  con- 
densed form  enables  them  to  be  readily  and  rapidly  trans- 
ferred, in  any  needed  quantities,  to  any  desired  point ;  and 
hence,  every  part  of  the  civilized  world  acts  upon  every 
other,  each  correcting  the  vacillations  of  every  other.  The 
field  is  so  large,  that  local  causes  help  to  nullify  and 
destroy  each  other — the  wants  of  one  portion  finding  rapid 


MONEY.  2G9 

correction  in  the  superfluities  of  another.  The  equilib- 
rium of  the  world's  currency  is  the  equilibrium  of  water, 
in  which  all  parts  exert  and  share  a  common  pressure,  and 
a  deficiency  at  one  point  begets  an  instant  and  concen- 
trated movement  from  every  other. 

The  stability  of  value  is  also  secured  in  money,  by  the 
fact,  that  any  rise  or  fall  in  value  rapidly  checks  itself.  We 
have  already  seen  that  a  rise  or  fall  in  the  price  of  any 
commodity  acts  on  the  supply,  enlarging  or  reducing  it; 
not  only  do  gold  and  silver,  when  used  as  money,  obey 
this  common  law  of  all  products,  but,  from  the  nature  of 
the  office  which  they  perform,  there  arises  a  second  check 
to  any  oscillation  of  value.  The  higher  the  purchasing 
power  of  these  metals,  the  less  the  quantity  required  to 
perform  a  given  amount  of  exchange,  and  hence  each  rise 
of  value  necessarily  reduces  the  demand  for  them,  as  con- 
stituting currency,  and  this  cessation  of  demand  tends  to 
check  a  further  rise.  So,  also,  if  they  fall  in  value,  a 
larger  quantity  must  be  employed  to  accomplish  the  same 
exchanges ;  the  demand  must  rise,  and  the  fall  be  rapidly 
checked.  On  either  side,  a  double  retardation  exists  to 
any  change  in  value. 

Another  cause  of  stability,  similar  to  the  last,  is,  that  the 
demand  for  an  enlarged  currency  will  arise  when  business 
is  most  active,  and  exchange  the  most  universal  and  con- 
stant. But  this  very  activity  of  business,  which  creates, 
in  part  reduces  the  demand.  One  dollar,  in  a  brisk  mar- 
ket, may,  in  a  single  day,  be  used  in  twenty  transfers,  and 
thus  be  the  medium  of  circulating  twenty  times  its  own 
value.     In  a  sluggish  market,  it  may  not  change  hands  but 

23* 


270  POLITICAL  ECONOMY. 

once,  twice,  or  thrice,  and  thus  accomplish  but  a  tenth  or 
twentieth  of  its  former  labor. 

Money  has  the  industry  of  those  that  use  it,  and,  in  an 
active  community,  a  currency  of  half  the  aggregate  amount 
may  keep  in  movement  more  trade  than  double  the  sum 
in  a  city  sluggish  and  indolent.  Hence,  the  very  briskness 
which  gives  rise  to  the  demand,  by  forcing  the  present 
supply  up  to  its  full  efficiency,  in  part  meets  it ;  and  the 
lull  of  business,  on  the  other  hand,  is  attended  with  little 
or  no  deposit  in  the  stream  of  currency. 

These  causes  are  sufficient  not  only  to  make  gold  and 
silver  the  most  reliable  of  all  values,  but,  when  the  explo- 
ration of  the  globe  shall  have  become  more  complete,  and 
the  accidents  of  new  continents  and  rich  surface  gleanings 
be  no  longer  possible,  they  will  be  sufficient  to  make  them 
practically  an  entirely  adequate  measure  of  value  and 
medium  of  exchange. 

§  5.  Money,  always  the  representative  of  value  and  that 
in  which  all  value  is  expressed,  has  oftentimes  become 
identified  in  men's  minds  with  wealth.  They  have  been 
ready  to  suppose  that  an  accumulation  of  the  precious 
metals  preeminently  rendered  a  nation  rich,  and  that  their 
deficiency  was  both  the  result  and  occasion  of  hopeless 
poverty.  This,  like  avarice,  is  a  fallacy  of  the  senses,  and 
has  been  strengthened  by  the  fact,  that  individual  wealth 
shows  itself  in  the  possession  and  ready  command  of  gold 
and  silver.  A  lurking  belief  in  the  peculiar  efficacy  and 
intrinsic  value  of  money  above  other  products,  has  made 
nations  reluctant  to  suffer  its  exportation,  and  desirous  to 


MONEY.  271 

encourage  its  importation.  Hence  this  branch  of  trade 
has,  in  times  past,  been  especially  the  object  of  legislative 
restrictions,  and  it  is  but  recently  that  men  have  been  wil- 
ling to  leave  the  distribution  of  the  precious  metals  to 
natural  forces,  —  forces  which  strew  them  evenly  over  the 
globe,  and,  by  their  very  equality,  make  them  like  the 
fertilizing  deposits  of  the  Nile. 

Scarcely  any  other  product  is  of  so  little  value  as  gold 
or  silver,  if  accumulated  in  any  country,  by  special  or  legis- 
lative effort,  beyond  the  share  which  trade  would  naturally 
have  furnished.  Unlike  most  products,  these  metals,  save 
a  limited  utility  in  the  arts,  meet  no  desire.  Their  first  use 
is  for  currency,  their  second  for  luxury;  and  in  both  of 
these  uses  a  limited  supply  is  as  efficient  as  a  more  abun- 
dant one.  Currency,  far  from  being  benefited  by  forcing 
full  its  circulation,  immediately  depletes  its  plethoric  chan- 
nels by  a  corresponding  reduction  of  value,  and  the  appar- 
ent gain  is  to  the  senses  only.  We  have  more  weight, 
but  less  value  in  the  same  weight ;  more  coins,  but  less 
worth  in  each  coin.  Nor  is  this  all;  not  only  is  there  a 
corresponding  loss  of  value  by  pushing  the  supply  beyond 
the  demand,  but  a  currency,  cut  off  from  the  world's  ex- 
change, resting  on  its  own  narrow  basis,  becomes  far  more 
liable  to  fluctuations.  The  artificial  barriers  may  at  any 
moment  give  way,  and  then,  like  head  waters,  gold  and 
silver  rush  out,  with  great  injury  of  existing  interests,  the 
unit  of  calculation  in  debt  and  credit  being  entirely  altered. 
So,  also,  the  gain  for  purposes  of  luxury  is  not  so  real  as  it 
seems.  Gold  plate  does  not  depend  for  its  value  on  its 
intrinsic  superiority,  but  on  the  estimation  of  men;    and 


272  POLITICAL   ECONOMY. 

just  iii  proportion  as  it  is  multiplied,  will  men  cease  to 
esteem  it,  and  will  it  fall  in  value.  No  product  which 
ministers  to  the  necessities  or  ordinary  enjoyments  of  life 
fails,  by  its  multiplication,  in  a  proportionate  degree  to 
benefit  men ;  yet  every  needful  product  has  been  neglected 
for  the  acquisition  of  gold,  which  obtained,  has  lost  a  large 
share  of  its  utility.  Gold,  like  manna,  is  good  up  to  the 
immediate  consumption  of  the  nation,  but  all  beyond  this 
perishes  in  the  hand  that  holds  it.  Gold  acquired  to  any 
amount,  the  real  wealth  of  a  nation,  its  command  of  enjoy- 
ments, must  still  depend  on  what  the  gold  can  purchase. 
In  proportion  as  the  pursuit  of  gold  has  been  general,  to 
the  exclusion  of  other  commodities,  will  these  commodi- 
ties be  limited  in  quantity,  and,  in  reference  to  it,  have 
risen  in  value,  and  the  utilities  which  the  new  gold  can 
purchase  be  less  than  those  which  were  open  to  the  pur- 
chase of  the  old.  Nor  could  this  be  relieved  by  the  expor- 
tation of  gold,  since  this  theory  especially  aims  to  prevent 
such  an  exportation.  The  old  mercantile  theory,  pushed  to 
its  limits,  must  destroy  production,  and,  in  every  degree, 
must  straiten  it. 

It  is  a  settled  principle,  then,  of  foreign  trade,  that  gold, 
neither  in  the  form  of  bullion  nor  of  coin,  demands  any 
special  regulation  or  restriction,  and  that,  even  with  greater 
power  and  precision  than  most  products,  it  finds  out  its 
own  best  market,  both  for  seller  and  buyer.  If  the  cur- 
rency of  a  country  is  deficient,  gold  will  be  proportionately 
high,  and  neighboring  countries,  in  whom  this  deficiency 
implies  relatively  a  surplus,  will  find  it  for  their  interest  to 
meet  the  demand.     The  uniformity  and  success  of  each 


MONEY.  273 

currency  must  depend  largely  on  the  uniformity  and  suc- 
cess of  all,  and  when  gold  has  a  greater  purchasing  power 
than  any  other  product,  this  fact  shows  that,  in  the  country 
from  which  it  comes,  it  is  relatively  in  excess,  and  in  that 
to  which  it  is  carried,  in  deficiency.  The  trade  in  this  pro- 
duct then  becomes,  immediately  and  ultimately,  most  prof- 
itable to  both  parties ;  and  only  when  it  is  so,  will  this 
traffic  be  preferred  to  that  in  other  commodities.  The  pro- 
duct, in  which  the  trade  can  be  undertaken  to  the  greatest 
advantage,  will  be  the  product  for  which  it  will  first  seek, 
and  in  which,  so  far  as  possible,  all  exchanges  will  take 
place,  and  other  products  will  enter  into  trade  in  the  order 
of  the  profits  they  respectively  afford.  There  is  no  reason, 
from  the  peculiar  office  which  they  perform  in  the  cur- 
rency, why  gold  and  silver  should  not  stand  in  their  own 
lot  among  other  commodities;  but  there  is  an  additional 
reason  for  this  policy  in  the  fact,  that  the  permanency  of 
currency  itself  is  thereby  best  secured. 

The  cost  to  each  nation,  of  the  gold  and  silver  consti- 
tuting its  currency,  is  not  necessarily  the  same  as  its  cost 
in  the  country  producing  it.  We  have  already  seen  that 
nations  pay  for  commodities  secured  through  trade,  not 
according  to  the  efficiency  of  labor  in  the  country  import- 
ing them,  but  according  to  the  efficiency  of  their  own 
labor, — according  to  the  cost  of  the  products  given  in 
exchange.  This  principle  is,  to  its  full  extent,  applicable 
to  the  purchase  of  gold.  It  matters  not  to  the  buyer  how 
efficient  or  inefficient,  how  much  overpaid  or  underpaid, 
may  be  the  labor  of  the  countries  where  lie  the  mines.  He 
pays  for  the  precious  metals  in  certain  commodities  of  his 


274  POLITICAL   ECONOMY. 

own,  and  the  question  of  greatest  interest  with  him  is  the 
amount  of  labor  which  these  cost  him.  Their  purchasing 
power  does  not  depend  on  their  cost  to  him  ;  this  may  be 
reduced  without  at  all  reducing  their  exchange  value,  but 
on  what  would  be  their  cost  in  the  country  furnishing  the 
gold. 

Also  the  traffic  in  the  precious  metals  is,  equally  with 
every  other,  subject  to  the  equation  of  international  de- 
mand. The  nation  that  has  created  the  greatest  demand 
for  its  products  will  secure  its  imports,  and,  among  others, 
that  of  gold,  at  a  correspondingly  reduced  price.  The 
country  whose  goods  are  in  high  demand  commands  the 
markets,  and,  within  certain  limits,  controls  prices.  Here, 
again,  the  skill  and  efficiency  of  labor  show  themselves, 
and  any  nation  that  has  pushed  one  or  more  branches  of 
industry  to  a  high  state  of  perfection,  finds  itself  able  to 
measure  the  cost  of  most  of  its  consumption  by  the  cost  of 
these,  its  best  and  cheapest  products.  It  is  with  them  that 
it  rules  foreign  markets,  and  obtains  gold,  or  what  it  wishes, 
not  with  an  even  division  of  the  advantages  of  trade,  but 
on  such  terms  as  the  demand  for  its  commodities  enables 
it  to  exact.  The  relations  of  trade  may  be  such,  between 
the  countries  furnishing,  and  those  seeking  gold,  as  either 
to  enhance  or  reduce  its  cost  to  the  purchasers.  Owing  to 
the  influence  of  the  equation  of  international  demand, 
gold  may  be  purchased  of  a  country  which  is  itself  a  pur- 
chaser, at  a  better  rate  than  in  a  direct  trade ;  and  a  cir- 
cuitous exchange  may  oftentimes  afford  larger  profits,  and 
bring  the  cost  of  the  same  product,  to  different  nations, 
more  nearly  to  an  equality,  than  a  direct  exchange.      Gold 


MONEY.  2<D 

and  silver  will  most  frequently  enter  a  country  through 
that  nation  which  is  its  largest  customer;  and  in  every 
case,  as  it  is  not  the  least,  but  the  most  advantageous 
trade  that  is  sought  for,  every  nation  will  obtain  gold  and 
silver  where,  with  the  existing  demand  for  its  goods,  they 
can  be  secured  at  the  least  cost  The  precious  metals, 
like  other  foreign  products,  may  be  slowly  cheapened  by 
the  greater  efficiency  of  home  labor ;  but  their  relation  in 
value,  either  to  the  exported  or  imported  commodities,  will 
not  thereby  be  affected.  An  efficiency  acting  on  all  de- 
partments leaves  the  relation  between  them  the  same,  and 
currency,  though  not  absolutely  permanent,  will  be  rela- 
tively so. 

§  6.  A  portion  of  foreign  trade  consists  in  exporting 
goods,  and,  to  the  extent  of  the  proceeds,  purchasing  a 
return  cargo.  Another  large  portion,  between  the  most 
commercial  nations,  does  not  rest  on  any  such  direct  pur- 
chase of  goods  with  goods  ;  but  commodities  are  imported 
by  each  nation,  according  to  the  existing  demand,  and  thus 
a  double  indebtedness  is  occasioned.  These  two  classes 
of  debts  are  made,  as  far  as  possible,  to  cancel  each  other, 
without  any  transfer  of  the  metals.  The  goods  imported 
into  the  United  States  from  England,  occasion  here  certain 
foreign  liabilities,  and  those  exported  to  England,  a  corre- 
sponding class  of  English  debts.  A  class  of  brokers,  or 
intermediate  agents,  buy  and  sell  the  bills,  mutually  drawn 
on  England  and  the  United  States.  Those  on  England, 
debtors  in  the  United  States  repurchase,  and  forward  to 
their  English  creditors,  and  thus  the  English  debtor  and 


276  POLITICAL  ECONOMY. 

creditor  are  paired  against  each  other.  By  a  precisely 
similar  process,  the  American  debtor  and  creditor  are  intro- 
duced, and  nothing  remains  to  be  adjusted  but  that  rem- 
nant of  indebtedness  in  one  country,  to  which  nothing  is 
found  to  correspond  in  the  other. 

If  the  purchases  in  America  equal  those  in  England, 
they  mutually  compensate  each  other ;  and,  in  the  traffic  of 
bills,  the  supply  and  demand,  in  both  countries,  will  remain 
in  equilibrium,  without  any  advance  of  price  on  the  part 
of  the  bills  of  either  country.  Exchange  is  then  said  to 
be  at  par,  and  there  is  no  tendency  in  trade  to  an  ine- 
quality. If  such  a  tendency  arises,  the  indebtedness  on 
the  one  side  being  greater  than  that  on  the  other,  in  the 
broker's  mart  of  bills  those  of  one  country  are  in  deficiency, 
and  rise  in  value ;  those  of  the  other  country  are  in  excess, 
and  sink  in  value.  Exchange  is  now  said,  to  the  extent 
of  the  per  cent,  expressing  the  rise,  to  be  in  favor  of  that 
country  whose  bills  have  risen.  The  rise  of  price,  in  bills 
drawn  on  one  country,  necessarily  involves  a  correspond- 
ing depression  in  those  return  bills  whose  excess  has  dis- 
turbed the  equation.  If  the  exchange  between  the  United 
States  and  England  is  one  per  cent,  against  the  former, 
then,  in  England,  the  bills  on  the  United  States  will  be  at 
one  per  cent,  discount,  and,  in  the  United  States,  those  on 
England  at  one  per  cent,  premium.  As  most  bills  have 
some  little  time  to  run,  this  state  of  exchange  need  not 
necessarily  occasion  any  transfer  of  coin.  The  broker 
may  buy  in  the  bills,  expecting  that  a  more  favorable  ex- 
change will  arise,  which  will  enable  him  to  cancel  his 
home  by  his  foreign  bills. 


MONEY.  £77 

The  very  state  of  the  exchange  tends  to  aid  him  in  this, 
and  to  restore  itself  to  par.  On  all  exports  from  the  United 
States,  at  the  above  rate  of  exchange,  there  would  be  real- 
ized an  additional  one  per  cent,  since  the  bills  represent- 
ing the  indebtedness  would  sell  at  an  advance.  All  im- 
ports, on  the  other  hand,  would  suffer  a  corresponding  loss 
in  the  discount  on  the  bills  by  which  they  were  met. 
Hence,  to  the  extent  of  the  adverse  exchange,  exports 
would  be  encouraged,  imports  discouraged,  and  an  effort 
made  to  restore  the  equality.  This  force  would  be  suffi- 
cient to  overcome  all  transient  and  superficial  causes,  and 
the  exchange  "would  restore  itself  by  its  own  action,  and 
without  any  transfer  of  coin. 

If,  however,  after  successive  delays,  the  exchange  fails 
to  restore  itself,  and  it  becomes  evident  that  remittances 
must  be  made,  the  adverse  per  cent,  will  rapidly  rise,  to 
meet  this  new  expense,  and  a  more  violent  effort  at  restora- 
tion thus  be  set  on  foot.  The  first  variation  in  the  rate 
of  exchange  springs  from  the  natural  and  inevitable  fluctu- 
ations of  trade,  and  readily  corrects  itself;  the  second  and 
more  violent  indicates  a  permanent  derangement.  This 
may  be  an  excess  of  trade  on  the  part  of  the  indebted 
country,  or  a  want  of  equality  in  the  value  of  the  currency 
of  the  two  countries,  —  the  currency  of  the  one  being  too 
replete  in  reference  to  that  of  the  other.  If  the  difficulty 
arises  from  the  first  cause,  the  necessity  of  payment  being 
forced  on  the  indebted  country,  will  either  restrict  its  de- 
mand, or  its  ability  to  obtain  credit.  If  from  the  second 
cause,  coin,  passing  from  one  country  to  the  other,  will 
tend  to  restore  their  respective  currencies  to  an  equality  of 

24 


278  POLITICAL  ECONOMY. 

value.  If,  for  any  reason,  the  metallic  currency  of  one 
country  has  become  fuller,  in  reference  to  the  amount  of 
exchange  to  be  performed  by  it,  than  that  of  the  country 
with  which  it  is  trading,  there  will  relatively  be  a  rise  of 
price  in  the  first,  and  a  depression  of  price  in  the  second. 
This,  in  the  first  country,  will  favor  imports,  and  check 
exports,  inducing  an  adverse  exchange,  which  can  only  be 
corrected  by  sending  coin  abroad.  This  accumulated  cur- 
rency will  continue  to  overflow,  till,  by  the  reduction  of  its 
amount,  its  value  has  risen  to  the  general  level,  the  price 
of  other  things  fallen  to  their  appropriate  value,  and,  under 
the  depleted  currency,  exports  and  imports  again  been  ) 
balanced,  and  the  exchange  again  restored  to  par. 

What  has  now  been  said  of  the  exchange  with  one 
country,  is  equally  true  of  it  with  all  foreign  countries.  In 
this  case,  nations  are  not  treated  separately,  but,  by  what 
is  termed  an  arbitration  of  exchange,  the  debts  of  onc^ 
country  are  set  over  against  the  credits  of  another,  and 
obligations  are  cancelled  by  an  indirect  and  double  or 
triple,  instead  of  by  a  direct  and  single,  exchange.  The  ex- 
changes of  a  country,  then,  vary,  not  according  to  its  trans- 
actions with  a  single  foreign  nation,  but  according  to  the 
balance  to  be  received  or  paid  by  it,  in  its  general  transac- 
tions with  that  community  of  civilized  nations,  which  are 
with  each  other  mutually  debtors  and  creditors. 

$  7.  The  range  of  values  over  which  it  is  found  conven- 
ient for  the  coins  of  a  currency  to  extend,  is  so  great,  that 
a  single  metal  cannot  cover  them  all,  without  forming  coins 
either  too  large  at  the  one  extreme,  or  too  small  at  ihe 


MONEY.  279 

other.  For  this  reason,  it  has  been  found  convenient  to 
use  two  metals,  differing  widely  in  value,  that,  where  the 
lowest  coin  of  the  one  series  ends,  the  highest  coin  of  the 
other  series  may  commence,  and  thus,  with  coins  of  a  con- 
venient size,  a  scale  be  secured,  having  the  range  of  both 
metals.  In  such  a  currency,  the  two  metals  become  the 
complements  of  each  other;  the  first  performing  the  work 
to  which  the  second  cannot  easily  attain ;  the  second,  that 
to  which  the  first  cannot  readily  stoop. 

A  second  and  important  advantage  in  a  currency,  includ- 
ing both  gold  and  silver,  is  its  tendency  to  increased  sta- 
bility. The  resources  from  which  it  draws  are  doubled ;  a 
transient  pressure  in  gold  is  relieved  by  the  presence  of 
silver,  and  in  silver  by  the  presence  of  gold  ;  the  accidents 
which  overtake  one  will  hardly  overtake  both,  at  the  same 
time  and  in  the  same  degree  ;  any  fluctuation  in  the  value 
of  one  will  be  made  obvious  by  its  relation  to  the  other, 
and  can,  in  part  at  least,  be  corrected  by  a  new  valuation : 
in  fine,  all  the  causes  of  stability,  arising  from  the  quantity 
and  multiplicity  of  sources  from  which  the  medium  of  cur- 
rency is  obtained,  would  operate  more  strongly  when  that 
medium  was  composed  of  two  metals,  than  when  of  one. 

But  while  there  are  these  obvious  advantages,  there  is  a 
serious  disadvantage  if  both  metals  are  to  have  in  the  cur- 
rency an  equal  legal  sanction.  Government,  in  exercising 
its  undoubted  prerogative  of  establishing  a  currency,  will 
be  called  on  to  settle  the  relative  value  of  the  two  metals, 
gold  and  silver.  This  is  not  readily  determinable.  But  if, 
the  preliminary  difficulty  being  overcome,  this  relation  is 
accurately  settled,  it  is  not  certain  to  remain  the  same. 


280  POLITICAL   ECONOMY. 

Gold  and  silver,  though  of  comparatively  unchangeable 
value,  do  change,  and  this  in  different  degrees.  If  the 
relation,  therefore,  be  established,  at  fourteen  ounces  of 
silver  for  one  of  gold,  the  progress  of  a  few  years  may 
vary  their  relation,  and  one  ounce  of  gold  may  now  be 
worth  fifteen  ounces  of  silver.  In  this  case,  two  results 
will  follow.  All  who  can  obtain  silver  will  pay  their  debts 
in  silver;  since,  being  valued  too  high,  in  reference  to  gold, 
it  is  a  cheaper  medium  with  which  to  meet  an  obligation. 
Fourteen  ounces  of  gold  would  purchase,  in  the  market  of 
bullion,  —  since  this  market  is  regulated  by  the  cost  of  pro- 
duction, and  not  by  the  legal  rate,  —  two  hundred  and  ten 
ounces  of  silver;  and  this  silver,  turned  into  coin,  would 
be  equal  to  fifteen  ounces  of  gold,  in  paying  debts  —  a  net 
gain  of  one  ounce  of  gold.  A  second  result,  nearly  akin 
to  this,  would  be,  that  the  gold  coin  would  be  constantly 
gathered  up  and  melted;  since,  in  the  form  of  bullion,  its 
purchasing  power  is  greater  than  in  that  of  coin.  When- 
ever, by  the  inevitable  changes  in  the  cost  of  production, 
one  of  these  metals  should  become  cheaper  than  the  rela- 
tive value  legally  assigned  it,  it  would  be  the  sole  medium 
of  meeting  indebtedness,  and  tend  to  displace  the  other 
from  the  currency. 

The  method  which  best  secures  the  advantages,  and 
best  escapes  the  disadvantages  of  two  metals,  is  that 
which  makes  one  of  them  a  legal  tender  for  all  amounts 
that  can  be  paid  in  it,  and  the  other,  silver,  for  those  small 
sums  not  expressed  in  gold  coin.  By  this  device,  debts 
and  credits  are  permanently  expressed  in  one  metal,  and 
the  first  difficulty  is  obviated.     We  have,  in  this  case,  no 


MONEY.  281 

other  difficulty  than  the  inevitable  one  of  fluctuation  in 
the  value  of  that  metal.  In  the  other  case,  all  debts  were 
exposed  to  the  double  fluctuation  of  two  metals,  and  any 
alteration  in  either  term  of  the  currency  was  sure  to  affect 
them.  If,  in  addition  to  this,  the  valuation  of  silver  is  kept 
slightly  above  its  true  relation  to  gold,  so  that  no  ordinary 
fluctuation  in  the  bullion  market  will  leave  the  price  of 
silver  higher  there  than  in  the  currency,  the  second  diffi- 
culty will  be  overcome,  and  there  will  remain  no  motive 
for  the  melting  down  of  either  kind  of  coin ;  —  not  of  gold, 
since,  if  with  a  very  trifling  advance  this  is  turned  into 
silver,  no  debts  can  be  paid  therewith,  except  at  the  option 
of  the  creditor ;  —  not  of  silver,  since  the  mint  price  of  this 
metal  is  slightly  above  the  market  price.  This  slight 
advance  in  silver  would  tend  to  bring  silver  bullion  to  the 
mint,  and  the  amounts  in  which  it  came  would  afford  a 
constant  test  of  the  correctness  of  the  legal  valuation.  If 
it  came  in  undue  quantities,  that  valuation,  as  too  high, 
could  be  reduced,  or  the  amount  coined  restricted.  It 
should,  however,  be  said  that  the  advantages  of  two  metals 
are  not  by  this  scheme  perfectly  secured;  since,  silver 
not  being  a  legal  tender,  if  any  scarcity  of  gold  should 
arise,  its  place  could  not  be  perfectly  supplied  by  the  other 
metal.  Silver  would,  however,  occupy  more  completely  all 
the  small  exchanges;  and  if  its  valuation  —  as  we  have 
seen  it  should  be  —  was  at  the  time  of  such  scarcity  not 
far  from  its  true  relation  to  gold,  it  would,  though  not  a 
legal  tender,  practically  circulate  in  the  payment  of  debts. 

$  8.    The  coinage  of  a  country  is  a  common  interest, 

24* 


282  POLITICAL  ECONOMY. 

an  important  and  delicate  trust,  and  can  nowhere  be  as 
safely  lodged  as  in  its  government ;  and  even  here  it  has 
been  an  often-abused  prerogative.  The  adulteration  of 
coin  has  seemed  so  simple  a  method  of  raising  money, 
that  few  governments  have  uniformly  resisted  the  tempta- 
tion. Yet  no  tax  rests  so  long,  so  heavily,  and  with  such 
broad  disaster,  on  all  productive  interests,  as  this.  To 
embarrass  the  movements  of  exchange,  is  to  impair  con- 
fidence and  limit  the  motives  to  production.  A  metallic 
currency  —  for  of  this  alone  we  are  in  the  present  chapter 
speaking  —  once  vitiated  becomes  an  intolerable  burden, 
and  in  its  reformation  compels  an  entire  resumption  of  the 
original  load  of  debt,  for  a  time  so  unsuccessfully  shifted 
to  the  currency.  The  inevitable  career  of  all  such  meas- 
ures is  from  reduction  to  reduction,  till  the  worthless  me- 
dium, utterly  failing  to  perform  its  functions,  is  wiped 
away  in  a  new  coinage. 

But,  while  the  government  is  the  true  representative  of 
all  common  interests,  and  by  general  admission  the  proper 
agent  in  establishing  and  sustaining  a  currency,  it  is  not 
desirable  that  this  should  be  done  wholly  at  the  public 
expense.  If  coin  is  given  in  equal  weight  at  the  public 
mints  for  bullion,  the  expense  of  coinage  and  of  the  delay 
involved  both  fall  on  the  public.  There  is,  in  that  case,  no 
greater  value  attached  to  coined  than  to  uncoined  metal ; 
and  hence,  in  the  arts,  the  one  is  as  quickly  melted  down 
as  the  other.  Nor  in  foreign  trade  has  bullion  any  advan- 
tage above  coin.  That  the  expenses,  therefore,  of  coin- 
age may  not  be  unnecessarily  increased  by  a  waste  of 
coin,  it  is  desirable  that  a  certain  charge  or  seigniorage 


MONEY.  283 

should  be  made  at  the  mint,  slightly  raising  the  price  of 
coin.  Such  a  charge  should  be  slight,  otherwise  it  will 
keep  bullion  from  the  mints,  and  make  the  replenishing  of 
the  currency  more  difficult. 

The  rate  of  interest  has  no  connection  with  the  value 
of  money,  but  is  a  question  of  the  loan  market,  depending 
on  the  equation  of  supply  and  demand  in  that  market.  If 
the  number  of  persons  seeking  to  lend  money  is  large,  in 
reference  to  the  number  wishing  to  borrow,  the  rate  will 
be  low,  whatever  may  be  the  state  of  the  currency.  A 
currency  crowded  and  reduced  in  value  —  the  demand 
and  supply  of  loans  remaining  the  same — will  not  affect 
interest,  since  a  given  rate  per  cent,  itself  increases  and 
decreases  in  value  in  the  same  ratio  as  the  coin  in  which 
it  is  paid  and  in  which  it  is  received.  The  state  of  the 
loan  market  depends  on  other  considerations,  of  which 
a  fuller  mention  will  be  made.  The  rate  per  cent,  how- 
ever, determines  the  price  to  be  paid  for  land  securities,  or 
anything  from  which  a  revenue  is  expected;  since  the 
return  which  the  land  or  securities  yield,  will,  at  each  dif- 
ferent rate,  represent  the  interest  of  different  sums,  and 
these  sums  will  guide  the  purchase  price. 


CHAPTER    IV. 

BANKS. 

§  1.  In  facilitating  and  economizing  the  use  of  money  as 
a  medium  of  exchange,  many  intermediate  agents  become 
necessary.  The  traffic  in  and  transfer  of  the  precious 
metals,  are  not  less  a  specialty  than  those  operations  in 
other  commodities.  Bankers  and  brokers  are  the  agents 
to  whom,  in  a  division  of  labor,  —  not  less  important  here 
than  elsewhere,  —  this  branch  has  fallen.  As  banks  play 
a  very  conspicuous  part  in  the  construction  and  working 
of  most  currencies,  it  is  necessary  to  understand  their 
nature  and  functions.  The  bank  seems  to  have  arisen 
from  the  office  of  the  broker,  and  to  have  taken  to  itself 
and  enlarged  some  of  the  most  important  duties  of  this 
class  of  commercial  agents.  The  Italian  banco,  or  bench 
of  the  broker,  indicates  the  early  introduction  of  this  class 
of  agents  into  the  commercial  cities  of  Italy,  and  the  grad- 
ual ripening  and  consolidation  of  their  functions  into  those 
of  the  bank.  Bankruptcy,  or  the  broken  bench,  marking 
the  failure  of  him  who  had  kept  his  money  mart  thereon, 
looks  to  the  same  origin.  The  bank  having  gathered  into 
itself  all  that  is  most  important  in  the  office  of  the  broker, 
the  broker  remains  either  a  private  banker,  a  monetary 
agent,  or  a  trader  in  bank  bills,  bills  of  exchange,  coins, 


BANKS.  285 

stocks,  loans,  and  notes.  So  far  as  the  broker  is  a  banker, 
he  has  a  more  limited,  yet  essentially  the  same  connection 
with  currency  as  a  bank ;  while  in  his  more  private,  and 
sometimes  less  reputable  traffic,  he  demands  no  especial 
attention. 

The  three  leading  offices  of  banks  are  — 

(a)  To  afford  places  of  deposit ; 

(b)  To  grant  loans  ; 

(c)  To  issue  bills. 

These  may  exist  separately  or  together  —  a  bank  being 
either  one  of  deposit,  one  of  loan,  one  of  issue,  or  one 
of  deposit  and  loan,  or  at  once  one  of  deposit,  loan,  and 
issue.  Each  of  the  succeeding  usually  involves  the  pre- 
ceding, though  the  preceding  have  often  been  found  sepa- 
rate from  the  succeeding.  Most  banks  of  the  United 
States,  and  many  elsewhere,  include  the  three.  We  shall 
speak  of  each  separately. 

$  2.  Banks  of  deposit  attend  upon  and  usually  imply  a 
pure  metallic  currency.  In  such  a  currency,  the  safe  keep- 
ing and  transfer  of  specie,  especially  in  large  sums,  occupy 
time  and  demand  vigilance.  To  reduce  the  labor  and 
danger  as  much  as  possible,  banks  are  established,  in 
whose  vaults  the  united  treasures  of  a  large  commercial 
community  or  of  nations  may  be  deposited;  the  parties 
making  these  deposits  are  credited,  in  the  books  of  the 
banks,  to  the  sums  received  of  them.  To  the  extent  of 
this  credit  they  can  at  any  time  draw  upon  the  bank,  and 
this  draft  is  honored  at  sight.  But  the  very  reason  that 
this  draft  may  be  at  any  time  presented,  and  the  money 


286  POLITICAL   ECONOMY. 

obtained  upon  it,  while  in  its  present  form  it  is  more  con- 
venient than  that  money,  would  dissuade  most  from  seek- 
ing its  payment ;  and  the  draft,  passing  from  hand  to  hand, 
may  accomplish  a  large  amount  of  exchange,  and  finally, 
falling  into  the  hands  of  one  already  having  deposits,  be 
presented,  and  payment  be  made  by  a  transfer  of  its 
amount  in  the  books  of  the  bank  to  his  credit.  Or,  cer- 
tificates of  deposit  may  be  given,  and  these  pass  from 
debtor  to  creditor,  in  place  of  the  sums  represented  in  them. 
Or,  without  either  certificate  or  draft,  the  transactions  of 
a  community  may  represent  themselves  in  dumb  show  in 
the  records  of  the  bank,  and  a  few  representative  figures 
take  the  place  in  transfer  of  large  weights  in  coin.  In 
connection  with  any  or  all  of  these  methods,  at  the  close 
of  each  year  a  rapid  balancing  of  accounts  in  the  books 
of  the  bank  or  banks,  with  a  few  slight  specie  pay- 
ments, will  adjust  the  complicated  exchanges  of  a  whole 
year.  A  few  strokes  of  the  pen  are  equivalent  to  the 
counting  out  and  transfer  of  gold  and  silver,  in  any  sums 
whatever.  Thousands  and  hundreds  of  thousands  of  dol- 
lars can  pass  and  repass  with  as  much  facility  and  safety 
as  the  incidental  payments  of  the  hour;  and  while  the 
specie  lies  untouched  and  untarnished  in  its  vaulted  cham- 
bers, the  certificate  of  ownership  may  be  transferred  and 
retransferred,  added  and  divided,  and  through  all  the  shift- 
ing phases  of  exchange,  strew  the  coin  in  petty  purchases, 
or  heap  it  in  heavy  payments.  The  largest  transactions 
are  so  quickly  accomplished,  and  represented  in  so  brief  a 
compass,  that  they  possess  the  ease  of  a  penny  purchase. 
For  the  safety,  facility,  and  economy  of  time,  labor,  and 


BANKS.  287 

wear  which  it  affords,  the  bank  obtains  a  slight  percentage 
on  deposits,  according  to  the  period  for  which  they  are 
made,  or  makes  a  charge  on  each  transaction.  The  Bank 
of  Amsterdam  was  the  great  repository  of  the  gold  and 
silver  of  middle  Europe  for  a  period  of  nearly  two  hundred 
years,  embracing  the  most  prosperous  days  of  the  Dutch 
republic  and  of  Dutch  commerce. 

Under  the  sub -treasury  system  of  the  United  States, 
the  several  places  of  deposit  where  payments  to  and  from 
the  public  treasure  are  received  and  made  in  the  precious 
metals  alone,  act,  within  a  limited  sphere,  as  banks  of  de- 
posit. This  action,  not  being  desired  by  the  law  which 
established  them,  is  guarded  against  by  the  very  limited 
time  in  which  all  paper  is  allowed  to  run ;  yet  any  order 
upon  the  treasury,  before  reaching  its  destination,  fre- 
quently changes  hands,  and,  in  the  end,  is  often  purchased 
and  presented  by  one  from  whom  customs  are  due,  and  to 
whom  this  order  affords  a  method  of  payment  much  more 
convenient  than  the  transfer  of  specie.  So  far  as  such 
orders  circulate,  they  act  precisely  like  a  certificate  of 
deposit,  —  each  transfer  dispensing  with  the  transfer  of  a 
corresponding  amount  of  gold.  A  single  order  may  accom- 
plish in  an  hour  what  the  most  thoroughly  trained  teller, 
with  a  competent  escort  of  porters,  could  not  so  well  or 
safely  do  in  a  day. 

$  3.  The  second  species  of  bank  is  that  of  loan.  In  this 
class  the  largest  representation  is  that  of  Savings  Banks. 
These  in  their  action  are  highly  benevolent,  but  are  also 
designed  to  remunerate  the  skill  and  capital  employed. 


288  POLITICAL  ECONOMY. 

The  officers  of  these  institutions,  by  the  experience  which 
they  have  acquired,  and  by  a  method  of  business  thor- 
oughly digested  and  proved,  are  able  to  make  loans  with 
much  greater  security  than  most  private  individuals.  A 
well-known  bank  presents  a  convenient  and  constantly 
accessible  place,  at  which  money  and  applications  for 
money  may  be  presented,  and  the  debtor  and  creditor  are 
mutually  relieved  of  all  labor  in  rinding  each  other,  and 
adjusting  the  securities  of  the  loan.  Very  much  money 
existing  in  scattered  sums  is  gathered  into  these  institu- 
tions, and,  while  yielding  a  revenue  to  the  owners,  quick- 
ens production  .  and  swells  the  available  capital  of  the 
country.  Sums  so  small  as  not  to  be  otherwise  capable 
of  a  loan,  here  accumulated  in  large  amounts,  compounded 
and  divided  to  suit  the  demand,  are  sent  on  services  profit- 
able to  the  creditor,  the  debtor,  and  the  bank.  There  are 
few  institutions  in  which  the  principles  of  economy  have 
fuller  play  than  in  these.  The  skill  and  constant  labor  of 
a  few  persons  take  the  place  of  the  unskilled  and  random 
labor  of  very  many.  All  the  remnants  of  money  are  gath- 
ered in  an  available  form,  and,  while  stimulating  industry 
at  one  point,  and  strengthening  it  at  another,  are  made  to 
yield  a  triple  revenue. 

Such  institutions  are  primarily  fitted  to  act  as  agents  for 
the  working  classes,  and  to  reach  the  savings  of  labor  and 
those  small  sums  which  are  redeemed  from  a  limited  busi- 
ness or  narrow  revenue.  Large  sums  in  the  hands  of  the 
wealthy  can  find  a  more  profitable  investment  than  these 
banks  can  afford.  Owing  to  the  necessary  loss  of  time  in 
effecting  loans,  and  the  loss   of  interest  on  the  money 


BANKS.  289 

retained  in  the  bank,  or  constantly  returning  to  it,  with 
which  sudden  demands  for  payment  are  met,  the  bank 
cannot  realize  in  its  gross  funds  the  full  current  rate ;  and 
as  there  must  be  a  further  deduction  to  meet  the  expenses 
of  the  bank,  the  terms  offered  to  customers  must  always 
be  sensibly  below  the  rate  of  profits  which  capital,  directly 
loaned  or  employed  in  business,  is  able  to  command.  This 
class  of  banks,  therefore,  can  only  present  adequate  in- 
ducements to  those  who  chiefly  wish  to  have  their  money 
securely  kept  and  within  reach,  or  who  possess  it  in  such, 
small  quantities  as  to  make  it  incapable  of  profitable  in- 
vestment elsewhere.  These  banks  have  usually  regula- 
tions restricting  the  amounts  received,  and  are  not  meant 
to  possess  the  function  of  deposit  as  it  belongs  to  banks  of 
issue. 

Some  banks,  like  those  of  Scotland,  have  kept  a  cash 
account  bearing  interest  with  customers,  and,  so  far,  been 
banks  of  loan.  In  that  case,  the  money,  from  the  time  of 
deposit,  drew  a  certain  rate;  the  person  making  the  de- 
posit was  at  liberty  to  increase  it  or  to  draw  from  it, 
according  to  the  exigencies  of  his  business,  and  the  bank 
rate  was  allowed,  at  the  close  of  the  year,  on  the  sums 
deposited  in  the  bank,  for  the  time  in  which  they  had  been 
suffered  to  remain.  It  is  evident  that  nearly  all  accruing 
on  such  an  account  would  be  to  a  business  man  a  net 
gain,  and  that,  with  the  most  careful  and  skilful  manage- 
ment on  the  part  of  the  bank,  the  percentage  allowed  by 
it  must  be  materially  below  that  obtained  by  it.  The  funds 
reserved  by  business  men  for  incidental  expenses,  or  real- 
ized during  the  progress  of  the   economic  year,  may,  by 

25 


290  POLITICAL  ECONOMY. 

this  system,  be  made  immediately  available.  Amid  the 
multiplicity  of  customers,  accidents  tend  to  cancel  each 
other;  the  rapid  drawing  of  one  finds  compensation  in 
the  slowness  of  another;  and  the  funds  of  the  bank,  dis- 
counted on  short  times,  and  flowing  rapidly  in  and  out,  are 
able  to  meet  the  exigencies  of  all  without  sensible  abate- 
ment or  interruption  of  its  own  loans.  The  skill  required 
for  the  successful  handling  of  such  an  institution,  is  of  a 
high  order,  and  it  combines  the  functions  of  deposit  and 
loan  in  their  most  economic  form. 

$  4.  The  third  class  of  banks  are  those  of  issue.  As 
already  intimated,  while  the  function  of  issue  or  circula- 
tion is  the  distinguishing  function  of  many  institutions,  it 
always  draws  with  it  the  other  functions  of  deposit  and 
loan.  The  last  term,  loan,  is  now  displaced  by  that  of  dis- 
count,  as  better  expressing  the  form  under  which  the  loans 
of  this  class  of  banks  are  made.  The  three  functions, 
then,  of  the  banks,  of  which,  as  being  most  intimately  con- 
nected with  exchange,  we  have  chiefly  to  speak,  are  de- 
posit, discount,  and  circulation.  The  first  two  of  these 
functions  are  in  their  new  relations  essentially  modified, 
and  will  demand  further  explanation. 

The  deposits  made  in  these  banks  obtain  no  interest, 
and  are  there  for  safe  keeping,  or  to  be  drawn  as  the  busi- 
ness exigencies  of  the  depositor  may  require.  The  inter- 
est which  the  bank  obtains  by  loaning  these  deposits  is  a 
very  material  part  of  its  revenue,  and  is  frequently  a  price 
paid  the  bank  for  accommodation.  Those  possessing  de- 
posits in  a  bank  will  naturally  enjoy  a  preference  at  its 


BANKS.  201 

counters,  and  when  the  legal  interest  is  below  the  current 
value  of  money,  the  free  use  of  such  deposits  may  still 
readily  induce  a  loan. 

Discount  is  the  most  prominent  and  visible  function  of 
the  bank  of  issue,  and  that  through  which  its  other  func- 
tions take  effect ;  for  this  purpose  it  receives  its  deposits, 
through  this  it  issues  its  bills.  Bank  discounts,  though  a 
more  expensive  method  of  meeting  sudden  liabilities  and 
the  expenses  incident  to  a  large  business,  than  the  cash 
account  to  which  reference  has  been  had,  is  nevertheless 
much  cheaper  than  to  be  one's  own  banker,  and  to  keep 
constantly  on  hand  sums  adequate  to  all  probable  and  pos- 
sible exigencies.  In  the  one  case,  there  is  the  certain  loss 
of  use  on  a  large  sum,  some  of  which  may  not  be  at  all 
wanted,  and  most  of  which  will  not  be  needed  for  the 
length  of  time  during  which  it  is  reserved ;  in  the  other, 
discount  is  paid  only  on  such  sums  as  are  actually  needed, 
and  for  the  time  in  which  they  are  in  use.  With  the  same 
amount  of  capital,  a  larger  business  can  be  safely  carried 
on  with  than  without  bank  discounts. 

As,  in  the  great  variety  of  persons  with  whom  banks 
have  occasion  to  deal,  security  and  uniformity  are  cardi- 
nal points,  no  note  is  discounted  without  two  names 
attached ;  this  has  given  rise  to  a  distinction  between  busi- 
ness and  accommodation  paper.  In  the  first,  both  parties 
are  interested,  and  sign  for  their  mutual  and  immediate 
benefit;  in  the  second,  but  one  is  interested  in  obtaining 
the  immediate  lonn,  and  secures  a  signer  in  compensation 
for  some  similar  favor,  or  through  personal  relations. 

A  may  wish  to  purchase  goods  of   B,  on  six  months' 


292  POLITICAL  ECONOMY. 

credit.  B  is  willing  to  furnish  them  at  an  advance  of  five 
per  cent,  on  cash  prices.  For  this  sum  A  gives  his  note, 
and  B,  signing  the  same,  gets  it  discounted  at  the  bank. 
He  thus  receives  his  ordinary  profits  and  a  slight  percent- 
age for  guaranteeing  the  note  of  his  customer,  and,  with 
capital  in  hand,  is  able  to  continue  his  business.  The 
buyer,  on  the  other  hand,  pays  cash  profits,  the  discount  of 
six  months,  and  from  one  to  two  per  cent,  for  the  guaran- 
tee of  his  note,  —  a  costly  way  of  carrying  on  business 
without  capital. 

The  note  of  A,  as  signed  and  discounted  by  B,  is  termed, 
business  paper,  as  representing  a  real  transaction,  and  has 
been  thought  to  have  an  advantage  over  accommodation 
paper,  which  rests  on  no  such  transaction.  Accommodation 
paper  is  not  necessarily  poorer,  and  may  be  far  better  than 
business  paper.  A  may  have  nothing  but  the  goods  he 
has  purchased,  and  these,  removed  to  a  distant  portion  of 
the  country,  may  be  readily  wasted,  or  fall  in  value  far 
below  the  face  of  the  note.  B  may  have  many  similar 
obligations,  with  no  better  signers  than  A,  —  obligations 
more  than  sufficient  to  cover  the  goods  which  may  remain 
in  his  possession ;  still  worse,  the  goods  which  have  passed 
from  B  to  A  may  have  already  been  sold  and  resold  in  a 
similar  manner,  and,  therefore,  be  twice  or  thrice  repre- 
sented in  discounted  notes.  On  the  other  hand,  accommo- 
dation paper  may  have  the  best  names,  and  the  fact  that  it 
opens  an  easy  way  to  reciprocal,  fraudulent  signing,  is  not 
sufficient  to  disparage  the  whole  class.  None  but  the 
utmost  vigilance  is  able  to  make  the  transactions  in  either, 
or  any  kind  of  paper,  always  secure. 


BANKS.  293 

Among  the  most  important  of  the  rules  by  which  the 
safety  of  the  bank  and  of  its  discounted  paper  is  secured; 
is  brevity  of  time.  Notes  which  have  but  a  short  time  to 
run  do  not  allow  so  great  a  change  in  the  circumstances 
of  the  signers,  or  so  large  an  opportunity  for  accumulated 
credit;  the  banker  is  better  able  to  observe  the  charac- 
ter and  business  habits  of  his  customers,  and  to  detect 
earlier  and  with  less  loss  any  irresponsibility  or  fraud  on 
their  part.  If  old  obligations  are  met  by  incurring  a  new 
and  larger  indebtedness,  even  though  the  transaction  is 
disguised  by  including  within  the  circle  several  persons 
and  banks,  the  experiment  is  much  more  critical  and 
readily  exposed  when,  the  time  being  short,  the  notes 
follow  rapidly  upon  each  other,  than  when  longer  periods 
have  come  in  to  disguise  the  movement.  The  bank  can 
also  much  more  certainly  meet  its  own  obligations  by  this 
method.  If  its  times  of  discount  are,  on  an  average,  three 
months,  the  payments  received  with  the  same  capital  will 
each  day  be  double  what  they  would  be  with  a  discount 
of  six  months.  It  has,  therefore,  at  all  times,  double  the 
resources  wherewith  to  meet  any  sudden  run  upon  it,  and 
double  the  power  to  control,  contract,  and  enlarge  its  busi- 
ness, according  to  the  demand  of  the  times.  With  so 
rapid  a  revolution  of  its  funds,  a  single  week,  by  restrain- 
ing loans,  may  prepare  it  to  meet  successfully  severe 
pressure. 

Intimately  connected  with  this  brevity  of  time  is  the 
promptitude  of  action,  on  the  part  of  banks,  when  any 
payment  is  not  fully  met,  and  the  notoriety  ami  finaneiaj 
ruin  which  immediately  follow  protested  paper.     In  this 

25* 


294  POLITICAL  ECONOMY. 

respect,  custom  has  armed  them  with  a  power,  which,  in  its 
decisive  nature  and  hold  upon  the  mind,  is  much  beyond 
that  given  by  the  sanction  of  law  to  ordinary  obligations. 
Owing  to  this  brevity  of  time,  banks  are  far  better  fitted 
to  afford  circulating  than  fixed  capital.  The  returns  from 
fixed  capital  are  necessarily  very  slow,  and  cannot  be 
safely  made  the  basis  of  bank  business;  circulating  capi- 
tal, on  the  other  hand,  after  each  brief  service  in  business, 
is  perpetually  returning  in  the  form  of  money.  Passing  in 
as  material,  it  may  very  shortly  pass  out  as  goods,  and 
come  again  as  their  market  value.  Loans  which  are  made 
as  circulating  capital  can  rest  for  security  on  the  fixed 
capital  involved,  while  those  made  for  fixed  capital  are 
exposed  to  all  its  vicissitudes,  without  any  other  resource. 
It  is  a  very  slight  demand,  that  he  who  is  entering  on 
business  should  be  able  to  furnish  his  fixed  capital  free 
from  incumbrance,  as  a  guarantee  and  security  for  the  aid 
which  may  be  furnished  in  meeting  the  current  expenses 
of  the  industrial  cycle.  This  rule  requires  still  further 
restriction ;  all  circulating  capital  cannot  be  safely  fur- 
nished by  banks.  Much  of  this,  constituting,  as  it  does, 
the  body  of  those  business  funds  which  must  be  kept  in 
perpetual  possession  or  movement,  and  can  only  be  re- 
turned to  the  bank  at  long  intervals,  to  be  again  immedi- 
ately removed,  cannot  be  obtained  from  this  source,  either 
in  consistency  with  the  interest  of  the  institution  or  the 
public  safety.  Business  should  not  rest  upon  the  banks, 
unable  to  stir  without  them,  but  only  find  in  them  a  felicit- 
ous and  economical  agent.  For  capital  which  is  to  be 
used  constantly,  the  bank  is  not  a  more,  but  a  less  eco- 


BANKS.  295 

nomical  source,  than  private  possession  or  private  loan. 
Money  employed  by  the  owner  costs  him  only  the  ordinary 
rate, —  the  bank  rate  is  always  more  than  this,  —  and  by 
so  much  is  business,  dependent  on  discount  for  its  constant 
funds,  carried  on  at  a  disadvantage  as  compared  with  that 
conducted  by  the  capitalist,  or  even  by  him  dependent  on 
private  loan.  What  is  not  for  the  interest  of  the  person 
borrowing  money  is  not  for  the  permanent  interest  of  the 
bank  lending  it.  All  that  retrenches  and  makes  precarious 
his  profits  must  ultimately  hazard  and  reduce  their  loans. 
Neither  are  funds  —  which  must  be  kept  constantly  in  the 
channel  of  business,  that  its  stream  may  flow  on  —  suffi- 
ciently at  the  control  of  the  bank  to  meet  its  exigencies. 
The  pressure  on  banks  and  business  will  often  arise  at  the 
same  time,  and  unless  they  are  independent  of  each  other, 
one  or  both  must  fail.  If  the  bank  withdraws  its  aid,  busi- 
ness fails;  if  it  does  not  withdraw,  the  bank  fails;  or, 
which  is  still  more  probable,  the  bank,  in  its  futile  effort  to 
withdraw,  destroys  itself  and  the  business  resting  upon  it. 
These  two  departments  can  greatly  aid,  but  cannot  carry 
each  other.  We  must  have,  on  the  part  of  each,  inde- 
pendent resources,  if  we  are  to  have  any  increase  of 
strength.  As  long  as  business  is  the  nursling  of  its  agent, 
both  will  be  fickle  and  dependent. 

All  sums  desired  for  a  limited  period  and  for  a  transitory 
use  can  be  most  economically  obtained  at  the  bank;  and 
these  are  the  discounts,  therefore,  which  it  should  be  the 
special  office  of  that  institution  to  make.  In  this  case  it 
becomes  the  common  purse  of  the  mercantile  community, 
by  which  all  transient  demands  may  be  met.     Reserved 


296  POLITICAL   ECONOMY. 

funds  are  no  longer  necessary,  and,  with  still  greater  se- 
curity than  these  could  give,  it  looks  to  the  bank  for  the 
floating  part  of  circulating  capital.  It  there  pays  for  the 
sums  needed,  according  to  the  times  for  which  they  are 
needed,  and  not  more. 

In  the  function  of  discount,  the  source  of  bank  profits  is 
the  rate  per  cent,  paid  on  the  loan.  This,  though  the  usual 
rate,  is  paid  in  advance,  being  deducted  from  the  sum 
sought,  and  for  which  a  note  is  given.  By  this  method 
considerable  more  than  compound  interest  is  obtained. 
Interest  on  the  whole  sum,  being  deducted  from  the  sum 
itself,  is  not  only  paid  in  advance,  but  is  paid  upon  itself. 
The  three  dollars,  the  discount  paid  on  one  hundred  dollars 
for  six  months,  is  the  interest  on  one  hundred,  not  on 
ninety-seven  dollars,  the  sum  received.  It  is  also  retained 
in  the  bank,  and  is  at  its  disposal  during  the  very  six 
months  for  which  the  paper  runs,  and  this  interest  is  accru- 
ing. In  both  of  these  respects'  the  bank  obtains  more  than 
compound  interest.  Its  revenue  here  is  by  no  means  so 
net  a  revenue  as  in  the  case  of  deposits.  It  is  the  com- 
bination of  the  two  functions  that  secures  profits. 

These  two  functions  of  deposit  and  discount  may  very 
readily,  and  often  do,  exist  in  the  form  now  explained, 
without  the  function  of  issue,  of  which  we  have  yet  to 
speak.  A  bank  can  operate  successfully  in  an  established 
currency,  using  its  capital  for  purposes  of  loan,  without 
any  ability  to  issue  its  own  bills.  The  function  of  issue 
may  be  restricted  to  a  single  bank,  or  reserved  by  the  gov- 
ernment, without  reducing  the  utility  of  banks  as  places 
of  deposit  and  sources  of  loan. 


BANKS.  297 

$  4.  The  function  of  issue  or  circulation  now  remains  to 
be  explained.  A  bank  of  deposit  does 'not  require  any- 
capital  save  that  vested  in  its  building  and  accompani- 
ments. A  bank  of  loan  may  itself  borrow  the  sums  which 
it  loans;  but  a  bank  of  discount  and  deposit  will  need, 
that  it  may  meet  the  wants  of  customers,  capital  from 
which,  in  addition  to  deposits,  the  funds  employed  may  be 
drawn.  So,  also,  a  bank  of  issue  necessarily  requires  cap- 
ital. These  banks,  as  acting  upon  the  currency  and  affect- 
ing its  security,  come  under  the  regulation  of  the  govern- 
ment, and  are  established  either  by  a  direct  act,  a  charter, 
or  by  a  general  act  —  a  banking  law.  The  capital  of  the 
proposed  bank  being  fixed  by  the  charter,  or  by  the  agree- 
ment of  the  parties,  it  is  divided  into  certain  shares,  and 
opened  for  subscription.  Those  taking  these  shares  are 
termed  stockholders,  and  by  the  payment  of  the  sums  so 
taken  the  capital  of  the  bank  is  made  up.  These  shares, 
if  the  bank  is  successful,  pay  annual  or  semi-annual  divi- 
dends, and  are  themselves  transferable,  being  at,  above,  or 
below  par,  according  as  the  dividends  are  equal  to,  greater, 
or  less  than  ordinary  profits.  The  bank  is  usually  man- 
aged through  a  board  of  directors,  composed  of  its  largest 
or  most  influential  stockholders,  —  this  board  appointing  its 
officers,  and  giving  general  direction  to  its  business.  The 
capital  of  the  bank  is  in  part  —  according  to  the  amount 
of  the  proposed  issues  —  expended  in  specie  designed  to 
be  the  basis  of  its  bills,  and  to  afford  the  means  of  their 
instant  redemption.  Having  secured  the  requisite  amounts 
of  gold  and  silver,  it  stamps  its  bills,  which  are  promissory 
notes,  of  a  large  variety  of  denominations,  and  protected 


298  POLITICAL   ECONOMY. 

from  forgery  by  skilful  engraving,  and  employs  these  in 
all  payments  and  discounts  As  long  as  these  are  payable 
at  the  counter  of  the  bank,  and  actually  paid,  when  de- 
mand is  made,  in  gold  and  silver,  they  readily  circulate, 
and  become  a  cheap  and  convenient  currency. 

It  is  necessary  to  keep  on  hand  large  amounts  of  the 
precious  metals,  that  these  bills,  at  all  times  and  in  all 
amounts,  may  be  redeemed.  If  the  gold  equals  the  bills, 
there  is  entire  safety,  but  there  is  also  no  profit  to  the 
bank.  If  the  gold  is  somewhat  less  than  the  bills,  there  is 
reasonable  safety,  and  a  profit  to  the  bank  equal  to  its  dis- 
count on  the  difference.  It  is  in  the  highest  degree  im- 
probable that  all  the  bills  of  the  bank  will  be  returned  at 
any  one  time.  Even  in  times  of  panic,  when  the  run  is 
general  and  protracted,  but  a  fraction  of  the  bills  actually 
out  is  usually  presented,  and,  in  all  ordinary  states  of  the 
money  market,  but  a  very  small  fraction  is  at  any  one  time 
presented  for  payment.  The  reserved  gold  and  silver  can 
therefore  be  something  less  than  the  circulation  of  the 
bank.  How  much  less?  In  the  answer  daily  and  practi- 
cally made  to  this  question  lies  the  great  difficulty.  Theo- 
retically, a  safe  number  might  undoubtedly  be  given ;  but 
how  shall  it  be  secured  that  all  banks  shall  adhere  to  this 
number?  We  might  say  that  gold,  to  the  extent  of  one- 
half  or  even  of  one-third  of  the  bills  in  circulation,  would 
be  sufficient ;  but  having  said  it,  we  do  not  thereby  remove 
the  temptation  or  the  ability  to  exceed  this  number.  The 
profits  and  the  danger  lie  in  the  same  direction ;  it  is  the 
extra  bills  which  endanger  the  currency  and  enrich  the 
banks.    The  arguments  by  which  these  profits  are  reached 


BANKS.  299 

are  exceedingly  plausible.  The  number  —  say  one-third 
—  is  fixed,  not  in  reference  to  ordinary,  but  extraordinary 
times  ;  not  for  the  quiet,  but  for  the  excited  and  distrustful 
market.  For  a  great  exigency — a  general  crisis  and  panic  — 
it  is  not  too  great;  and  a  currency  which  is  to  anticipate  a 
great  panic,  and  control  it,  must  be  good,  then  and  there. 
If  the  ship  is  supposed  to  be  sinking,  the  question  is  not 
Has  she  floated?  but  Can  she  now  float?  It  is  only  sound 
timbers  and  good  oak  that  can  quiet  this  alarm.  The 
soldier  must  be  good,  not  for  the  camp,  but  for  the  field ; 
the  currency  must  be  good,  not  when  it  is  least  needed, 
but  when  it  is  most  needed,  and  when  the  very  fear  and 
doubt  among  men  are,  that  it  is  no  longer  good.  A  num- 
ber, therefore,  pitched  to  the  highest  note  of  alarm  —  which 
is  the  only  safe  number  —  is  necessarily  much  beyond  that 
demanded  in  all  ordinary  business.  It  readily  happens, 
therefore,  in  protractedly  tranquil  periods,  —  though  the 
tranquillity  may  in  part  be  attributable  to  the  firmness 
with  which  the  ratio  has  been  hitherto  preserved,  —  that 
this  ratio,  as  tested  by  experience,  seems  to  be  needlessly 
large ;  and  as  profit  lies  in  its  reduction,  it  is  reduced :  either 
gold  is  paid  out,  or  the  bills  based  on  it  are  increased,  as 
currency  may  admit,  —  and  one  or  other  it  will  always 
admit.  This  process,  once  begun,  has  no  limit,  save  a 
reduction  which  barely  enables  the  bank  to  meet  its  ordi- 
nary liabilities.  But  this  movement  is  one  of  the  subtle 
elements  which,  in  the  midst  of  the  fair  weather,  prepares 
and  precipitates  the  storm;  and  no  sooner  does  it  come, 
than,  the  difficulty  being  incapable  of  a  sudden  remedy, 
the  banks  are  overthrown.     A  currency  which  protracted 


GOO  POLITICAL  ECONOMY. 

prosperity  has  in  this  method  worm-eaten,  cannot  be  re- 
paired in  time  to  meet  and  ride  the  tempest,  but,  like 
everything  else,  is  driven  before  it  or  engulfed  by  it. 

To  correct  this  tendency  of  over-issue,  or  —  what  is 
more  correct,  since  the  issue  of  a  bank  is  not  altogether 
within  its  control  —  to  prevent  this  excess  of  bank  circula- 
tion, as  compared  with  the  specie  retained,  various  methods 
have  been  devised,  some  more,  some  less  successful.  Cer- 
tain amounts  of  specie  have  been  enjoined  by  law,  and 
officers  appointed  to  inspect  the  banks  and  enforce  the 
regulation.  In  practice,  such  laws  have  been  found  to  be 
generally  and  easily  evaded,  and  unable  to  reach  the  end 
proposed  by  them.  The  honesty  of  the  government  is 
never  so  great  as  to  atone  for  the  want  of  honesty  in  the 
people.  A  thing  once  permitted  will  be  well  or  illy  done, 
according  to  the  character  of  those  to  whom  it  is  permitted. 
A  speculating,  money-loving  people,  with  only  ordinary 
honesty,  will  do  what  is  intrusted  to  them,  when  a  strife 
arises  between  their  own  and  the  public  interest,  with  no 
more  than  ordinary  integrity;  nor  will  they  often  so  ap- 
point a  committee  over  themselves,  as  much  to  modify 
their  action. 

A  second  and  not  more  successful  device  has  been  that 
of  requiring  certain  state  stocks  or  land  securities  to  be 
pledged  for  the  redemption  of  bills.  This  remedy  does 
not  provide  for  the  principal  danger.  It  is  not  a  question 
of  ultimate,  but  of  immediate  payment,  which  is  at  issue 
in  a  panic.  The  fear  is  not  allayed  by  the  assurance  that 
all  demands  shall  be  finally  met ;  it  regards  it  rather  as  a 
confession  of  present  weakness.      With  a  class  of  persons 


TANKS.  301 

from  whom  most  danger  is  to  be  apprehended,  those  who 
themselves  are  under  pressure,  or  who  act  ignorantly  and 
by  impulse,  swelling  the  throng  without  knowing  why, 
this  consideration  would  avail  little.  In  a  financial  crisis, 
the  larger  amount  of  failures  arises,  not  from  a  complete,  a 
future,  but  from  a  present  inability  to  meet  payments. 
The  bank  would  not  find  itself  distinguished  from  others 
in  this  respect.  The  public  stock  —  its  real  estate  and 
lands  —  would  not,  when  they  were  most  needed,  give  it 
room  to  stand  upon.  The  demand  is  instantaneous,  and 
so  must  be  the  supply  which  meets  it.  Neither  is  the 
Safety  Fund,  —  a  very  similar  scheme,  by  which  the  banks 
are  mutually  pledged  to  each  other.  —  so  far  as  it  looks  to 
the  ultimate  redemption  of  bills,  any  more  able  to  give  aid 
in  the  pressure  of  a  general  panic.  Coin  —  instant,  solid, 
and  unrestricted  —  is  the  remedy,  because  at  this  point 
lies  the  doubt. 

Banks  may,  and  oftentimes  do,  exert  a  strong  restrain- 
ing influence  upon  each  other.  Banks  become  large  hold- 
ers of  the  bills  of  other  banks.  If  these  bills  are  fre- 
quently returned  to  the  respective  banks  for  payment 
whose  they  are,  any  bank  that  is  not  able  to  meet  its  own 
bills  with  a  corresponding  amount  of  the  bills  of  other 
banks  finds  itself  perpetually  straitened,  and  forced  into 
suspension  or  a  reduction  of  circulation.  Banks  of  the 
same  city,  from  their  proximity,  are  able  to  make  this  a 
systematic  and  powerful  restraint.  Those  of  London  have 
established  what  is  termed  a  clearing  house,  to  which,  at 
the  close  of  the  day,  each  bank  sends  the  bills  of  the  city 
banks  which  it  has  received,  and  there  exchanges  them  for 

26 


302  POLITICAL  ECONOMY. 

its  own,  paying  and  receiving  all  balances  in  coin.  By  this 
means  a  very  large  business  is  rapidly  adjusted  between 
the  banks,  with  a  very  slight  actual  transfer  of  money. 
The  clearing  house  bears  the  same  relation  to  the  banks 
as  a  bank  of  deposit  bears  to  its  customers,  —  economically 
and  rapidly  arranging  their  business,  making  different 
transactions,  as  far  as  possible,  cancel  each  other,  and 
leaving  ouly  slight  remainders  to  be  adjusted  by  actual 
transfer. 

The  action  of  such  a  system  on  the  security  of  banks, 
restraining  their  circulation  and  testing  their  strength,  is 
obvious.  An  over-issue  on  the  part  of  any  bank  is  imme- 
diately observed,  and  the  result,  a  return  of  bills,  is  imme- 
diately visited  on  the  guilty  party.  Any  enlargement  of 
its  circulation,  on  the  part  of  any  bank,  which  is  not  the 
result  of  new  deposits  of  new  specie  or  a  favorable  balance 
bringing  specie,  instantly  embarrasses  the  bank,  by  a  daily 
and  increasing  loss  in  the  adjustments  of  the  clearing 
house.  Every  bank  lends  itself  to  the  labor  of  detecting 
and  correcting  the  errors  of  every  other,  and  all  unite  to 
quicken  and  make  efficient  the  otherwise  too  tardy  penalty 
of  over-issues.  It  is  not  the  absolute  amount  of  its  circu- 
lation, but  the  relation  of  this  amount  to  its  receipts  and 
specie,  that  determines  the  position  of  a  bank,  and  decides 
on  its  issues,  as  safe  or  as  excessive.  The  banks  of  New 
York  and  Boston  have  imitated  those  of  London  in  the 
establishment  of  clearing  houses,  and  in  some  instances 
country  banks  have  been  compelled  to  redeem  their  bills 
at  the  counter  of  some  city  bank;  and  those  who  have 
refused  to  make  such  an  arrangement,  have  been  visited 


BANKS.  COS 

by  a  sudden  inundation  of  their  own  bills,  collected  in  the 
city  banks.  By  this  means  they  were  laid  under  the  same 
liabilities  as  the  city  banks,  and  were  not  suffered  to  share 
the  circulation  on  any  easier  condition  than  that  enjoyed 
by  their  city  competitors. 

Notwithstanding  all  these  methods  of  restricting  the 
issue  of  bills,  it  has,  in  the  great  majority  of  cases,  pro- 
ceeded till  the  ratio  of  bills  to  specie  has  been  far  beyond 
that  shown,  either  theoretically  or  practically,  to  be  safe. 
The  ratio  of  bills  to  specie  in  the  banks  of  New  England, 
in  1855,  varied  from  5:1  to  18  :  1 ;  in  the  Middle  States, 
from  2.6  :  1  to  6.6  :  1.  Clearing  houses  serve  rather  as  a 
relative  than  an  absolute  restraint.  They  keep  the  banks 
in  the  same  line,  but  do  not  restrain  that  line  from  being 
too  far  advanced.  Three  banks  whose  issues  bear  about 
the  same  relation  to  their  resources  cannot  act  as  restraints 
on  each  other.  A  bank  stronger  than  any  of  the  three 
may,  without  danger  of  suffering  in  turn,  accumulate  and 
force  back  their  bills.  A  tendency,  therefore,  pervading 
all  banks,  to  enlarge  their  circulation,  or  —  which  may  be 
practicable  when  the  other  is  not  —  to  reduce  its  specie 
basis,  may  be  retarded,  but  will  not  be  corrected  by  clear- 
ing houses. 

§  5.  It  is  not  the  amount  of  a  bank's  circulation,  but  the 
relation  of  that  circulation  to  its  specie,  that  is  a  point  of 
interest  and  of  danger.  A  bank  cannot  at  pleasure  en- 
large its  circulation.  The  forces  which  receive  and  keep 
afloat,  or  which  reject  its  bills,  are  not  under  its  own  con- 
trol.    It  may  make  every  effort  to  force  its  bills  out,  but  it 


304  POLITICAL   ECONOMY. 

cannot  secure  that  they  shall  remain  out.  If  these  bills 
are  redeemable,  and  thus  at  par,  they  must  take  the  place 
of  equivalent  amounts  of  gold,  and  therefore  can  only 
work  themselves  into  circulation  by  expelling  gold  from 
the  currency,  or  by  occupying  the  new  ground  which  busi- 
ness, in  a  growing  community,  may  present.  A  given 
amount  of  business,  of  exchange,  demands  and  will  suffer 
only  a  given  amount  of  money.  With  a  fixed  value  in  the 
medium,  currency  tends  to  a  plenum,  —  or,  rather,  the  value 
so  adjusts  itself  as  to  make  every  state  of  rest  a  plenum,  — 
and,  value  remaining  the  same,  little  or  nothing  can  either 
be  added  or  subtracted.  If  any  addition  is  made,  there  is 
an  immediate  and  corresponding  depression  in  the  aggre- 
gate value  of  the  medium;  and  if  that  medium  is  gold, 
and  therefore  its  value  sustained  by  its  price  in  the  world's 
market,  any  attempt  to  force  bills  into  a  full  circulation 
will  result,  first,  in  their  rejection;  later,  if  the  effort  is 
continued  and  vigorous,  in  the  exportation  of  gold,  that 
these  may  take  its  place. 

The  bills  forced  upon  the  circulation  will  tend  to  reduce 
the  currency  in  value ;  that  is,  the  value  of  gold  and  silver 
at  home,  as  compared  with  the  foreign  value.  This  will 
naturally  result  in  an  exportation  of  the  precious  metals, 
and  in  order  that  these  may  be  obtained,  many  bills  will 
be  returned  to  the  banks.  These  banks  will  then  be  under 
the  necessity  of  replacing  their  specie.  The  specie  so 
removed,  together  with  that  already  transported,  which 
was  before  in  the  hands  of  individuals,  will  make  room  in 
the  currency  for  the  permanent  presence  of  bills.  As  this 
process  proceeds,  specie  will  be  obtained  with  increasing 


BANKS.  305 

difficulty,  and  the  burden  of  furnishing  it  for  exportation 
and  replacing  it  in  their  vaults,  thrown  more  and  more 
exclusively  on  the  banks.  When  this  movement  is  pass- 
ing to  its  completion,  and  specie  is  no  longer  readily  ob- 
tainable, any  bank  that  enlarges  its  issue  will  find  its  bills 
almost  immediately  returned  to  its  counter,  and  the  power 
that  throws  them  from  the  currency  invincible  and  stub- 
born. Its  specie  will  be  rapidly  extracted,  its  deposits 
made  in  its  own  bills,  and  all  its  movements  cramped  and 
embarrassed,  indicating  that  it  is  operating  in  a  field 
already  occupied. 

If  two-thirds  of  the  whole  currency  is  to  be  paper,  and 
this  paper  currency  is  to  have  a  basis  in  the  precious  met- 
als of  one-third  of  its  own  nominal  value,  then  there  is 
four-ninths  of  the  whole  currency  which  is  open  to  the 
circulation  of  banks  beyond  the  bills  representing  their 
reserved  specie.  Here  is  a  certain  amount  of  circulation, 
of  profits,  to  be  divided  among  all  banks,  and  m  propor- 
tion as  these  banks  are  few,  the  share  of  each  will  be 
large  ;  as  they  are  many,  small.  If  the  barriers  are  firm, — 
if  the  coin  still  used  as  change  is  one-third  of  the  former 
solid  currency,  —  the  circulation  cannot  be  forced  materially 
beyond  this  two-thirds,  or  the  margin  of  profits  beyond  the 
four-ninths.  This  is  the  aggregate  of  gain ;  and  banks  may 
compete  with  each  other  for  it,  but  they  cannot  increase  it. 
Numbers  only  reduce  the  shares.  The  great  difficulty 
is,  that  these  barriers  have  never  been  found  firm,  and 
amid  the  general  strife  the  issues  on  all  sides  have  passed 
beyond  the  prescribed  ratio  of  bills  to  specie. 

To  secure  a  larger  share  of  circulation,  banks  have  sev- 
20* 


306  POLITICAL   ECONOMY. 

eral  devices.  Chief  among  these  is  the  use  of  small  bills. 
The  larger  bills  being  employed  mostly  in  the  wholesale 
trade,  and  therefore  confined  to  the  cities,  are  perpetually 
passing,  as  deposits  or  in  payment  of  loans,  into  the  banks, 
and  thus  are  almost  immediately  returned  to  the  bank 
whence  they  issued.  Small  bills,  on  the  other  hand,  wan- 
dering out  into  the  intricacies  of  the  retail  market,  may  go 
far  and  do  much  before  finding  again  the  fountain  head. 
These  are  fitted  for  the  perpetual  currents  of  daily  traffic, 
—  currents  that  do  not  flow  to  the  banks,  or  stand  in  any 
close  connection  with  them,  but  are  ever  revolving  among 
themselves  in  a  labyrinth  of  unending  movements. 

This  has  given  in  bank  issues  a  decided  preference  to 
small  bills,  as  these,  when  discounted  to  manufacturers, 
and  paid  to  workmen,  or  sent  to  a  distance,  are  slow  in 
finding  the  homeward  path  and  presenting  their  importu- 
nate claims  at  the  paternal  door.  This  gives  to  parties 
who  have  occasion  for  these  bills,  in  payment  of  wages, 
an  advantage  in  their  application  for  discounts;  it  also 
gives  a  very  decided  advantage  to  a  country  over  a  city 
bank.  The  former  can  with  ease  keep  afloat  twice  or 
thrice  the  circulation  of  the  latter. 

The  tendency  hereby  secured  of  pressing  the  circula- 
tion of  small  bills  is  especially  unfortunate  in  its  effect  on 
currency.  Retail  exchanges  should  be  confined  to  the 
precious  metals,  thereby  securing  the  presence  of  these  in 
large  amounts  in  the  currency,  and  giving  it  firmness  and 
safety.  These  small  bills  expel  gold  and  silver  from  trans- 
actions whose  necessities  they  perfectly  meet,  and,  by 
narrowing  the  basis  of  the  currency,  make  it  proportion- 


BANKS.  807 

ately  insecure.  The  restriction  of  issues  to  hills  whose 
lowest  denomination  should  be  ten  dollars,  would  help  also 
to  remove  the  temptation  and  the  ability  from  banks  to  un- 
duly enlarge  their  circulation.  The  abandonment  of  its 
function  of  establishing  and  regulating  currency,  on  the  part 
of  the  general  government,  and  our  division  into  states 
here  works  a  mischief.  The  action  of  no  one  state  can 
relieve  the  difficulty,  but  only  prepares  the  way  for  the 
enhanced  profits  of  its  neighbors,  and  a  yet  worse  attitude 
of  its  own  currency.  The  circulation  between  the  states 
often  dooms  us  to  the  evils  of  the  worst  of  their  several 
currencies,  and  robs  us  of  the  benefit  of  the  best. 

$  6.  The  losses  and  liabilities  inseparably  connected 
with  this  function  of  circulation  in  a  banking  system,  arc 
not  without  obvious  gains,  individual  and  public.  If  a 
country  is  in  possession  of  a  pure  metallic  currency,  with 
free  commercial  relations,  —  the  value  of  its  gold  and  sil- 
ver resting  upon  their  value  as  fixed  by  the  action  of  the 
world's  demand  on  the  cost  of  production,  —  any  addition 
made  to  that  currency  will  tend  to  raise  home  prices,  to 
favor  importation,  and  to  secure  an  exportation  of  coin  in 
payment.  The  effect  is  precisely  the  same  when  this 
addition  is  made  to  the  currency,  not  in  precious  metals, 
but  in  convertible  paper  money.  Such  paper  acts  on  the 
currency  as  similar  amounts  of  gold  and  silver  would  act. 
The  currency  being  in  excess,  the  equilibrium  will  be 
restored  through  an  effect  on  prices  discouraging  exporta- 
tion, and  making  it  for  the  interest  of  purchasers  to  meet 
foreign  indebtedness  in  tho  cheapened  coin  of  their  own 


308  POLITICAL   ECONOMY. 

country.  Paper  cannot  be  carried  abroad  ;  gold  and  silver, 
therefore,  to  the  amount  of  the  paper  added,  will,  in  the 
effort  to  restore  the  currency  to  its  former  value,  seek  a 
foreign  market.  We  may  either  say,  that  the  high  prices 
at  home  discourage  exportation  and  encourage  importation, 
throwing  the  balance  against  us,  to  be  met  in  money;  or 
that  money,  reduced  in  value,  has  increased  advantages 
as  an  article  of  foreign  trade.  If  one  hundred  millions  of 
dollars  in  bills  be  added  to  the  currency  of  the  United 
States,  sixty-six  millions  of  metallic  money  being  thereby 
released,  would  seek  through  foreign  trade  the  world's 
market.  The  exportation  would  naturally  fall  somewhat 
below  this  sum,  as  such  an  addition  would  tend  slightly  to 
depress  the  value  of  gold  everywhere ;  and  hence  the 
home  currency  must  retain  some  of  tins  surplus,  to  effect 
the  same  changes  at  the  enhanced  prices.  This  sixty-six 
millions,  or  something  less,  would  be  added  to  the  capital 
of  the  country  using  the  cheaper  currency ;  or  more  accu- 
rately, if  it  be  insisted  that  paper  money  has  no  intrinsic 
value,  the  use  of  sixty-six  millions  would,  through  the 
banks,  be  given  in  perpetuity  to  the  country,  so  long  as  it 
should  employ  the  more  economical  medium.  If  a  metal- 
lic currency  should  ever  be  resumed,  the  loan  would  be 
reclaimed,  and  the  sixty-six  millions  must  then  be  pur- 
chased abroad.  The  immediate  gain,  therefore,  of  the 
country,  and  the  permanent  gain,  if  the  mixed  currency  is 
able  to  perform  its  office,  is  the  use  of  sixty-six  millions. 

Foreign  countries  which  receive  this  money  released 
from  the  currency  of  the  United  States,  pay  for  it  in  goods ; 
and  as  their  increased  currencies,  being  reduced  in  value, 


BANKS.  309 

perform  no  better  the  office  of  exchange,  and  are  worth  no 
more  than  before,  it  might  seem  that  the  gains  of  one 
country  but  equalled  the  combined  losses  of  other  coun- 
tries; and  nearly  this  would  be  the  immediate  result. 
This  increased  cheapness,  however,  of  the  precious  metals, 
would  withdraw  capital  and  labor  from  the  mines,  since 
some  of  these  could  no  longer  be  worked,  and  the  money 
obtained  by  the  rejection  of  coin  in  another  currency, 
would  take  the  place  of  that  which  would  otherwise  have 
been  ultimately  obtained  at  the  mines,  and  therefore  recall 
to  other  kinds  of  production  the  labor  and  capital  ex- 
pended in  the  mines,  or  that  employed  in  the  compen- 
sation of  labor  and  capital  so  expended.  An  immediate 
purchase  is  substituted  for  a  more  protracted  purchase,  in 
connection  with  the  ordinary  and  yearly  supply  of  gold. 
This,  however,  is  not  done  without  loss,  from  three  causes : 
the  rapid  influx  of  gold  reduces  its  price,  and  occasions 
depression  and  vacillation  in  the  currency,  by  which  it  is  a 
less  appropriate  measure  of  value  and  medium  of  ex- 
change ;  capital  and  labor  are  withdrawn  from  one  kind  of 
production,  —  that  of  gold,  —  which  must  be  restored  again 
when  this  new  supply  shall  have  exhausted  its  effect,  and 
the  value  again  have  risen;  the  purchase  of  gold  for  the 
time  intervening  between  the  depression  and  the  final 
restoration  of  value  in  the  currency,  has  been  made  in 
advance,  with  something  of  violence,  instead  of  by  the 
ordinary  methods,  as  the  demand  arose.  Foreign  coun- 
tries are  not,  therefore,  perfectly  remunerated  for  the  loss 
which  they  suffer  in  connection  with  such  a  change  of 
currency.     If  all  countries  were  successively,  or  at  once, 


310  POLITICAL  ECOXOM*. 

to  adopt  this  method  of  economy,  its  advantages  would  be 
almost  wholly  lost.  The  arts  could  not  receive  the  met- 
als thus  disengaged,  without  a  large  reduction  in  their 
value ;  and  so  fast  as  the  value  should  rise,  the  currency 
must  again  drink  up  the  stream  which  it  had  poured  forth, 
in  order  that  that  part  of  exchange  still  left  to  the  metals 
might  be  performed.  There  would  also  be  a  corresponding 
fall  in  the  value  of  bills,  and  hence  a  proportionate  increase 
of  these  and  the  specie  on  which  they  were  based.  If  gold 
and  silver  are  to  be  driven  out  with  profit,  there  must  be 
some  broad  market  to  which  they  can  be  sent,  and  through 
which  they  can  spread  themselves.  They  cannot  be 
simultaneously  expelled  from  all  countries,  each  making  a 
profit  by  the  transaction. 

The  difference  of  expense  in  sustaining  a  metallic  and  a 
mixed  currency  is  thought  to  be  a  further  gain.  Whether 
there  is  any  such  difference  in  favor  of  the  latter  may  well 
be  doubted.  The  loss  in  gold  by  abrasion  has  been  put  as 
low  as  four  and  one-half  per  cent,  in  a  century.  The  cost 
of  paper  must  be  considerably  greater.  But  if  there  is  any 
such  gain,  it  can  readily  be  secured  through  banks  of 
deposit  and  gold  notes,  —  notes  representing  gold,  —  with- 
out any  banks  of  issue.  The  gains  of  a  nation,  when  we 
consider  the  constant  hazard  and  loss  which  attach  to  this 
kind  of  circulation,  and  the  comparative  facility  afforded  to 
counterfeiting  by  the  great  variety  of  these  bills,  seem 
slight ;  not  so  those  of  the  individual. 

Each  bank  secures  the  profits  arising  from  the  use  of 
the  excess  of  its  circulation  above  its  reserved  specie ;  this 
may  be  many  thousands  of  dollars.     There  are  also  addi- 


BANKS.  811 

tional  gains  from  the  loss  of  bills,  or  any  failure  to  return 
them  for  payment  to  the  bank.  Fire  and  water  more 
endanger  these  than  the  metals.  The  other  and  highly- 
valuable  functions  of  a  bank  may  be  profitably  exercised 
without  that  of  circulation;  and  if  the  number  of  these 
institutions  is  thereby  considerably  reduced,  it  might  be 
well  to  inquire  whether  the  gains  of  the  nation,  in  redeem- 
ing to  other  kinds  of  production  the  distinguished  talents 
of  the  gentlemen  directing  these  banks,  would  not  be  as 
well  worth  securing  as  those  reached  in  economizing  the 
labor  of  gold  diggers. 


CHAPTER   V. 

CREDIT. 

$  1.  The  advantages  which  belong  to  credit  are  open  to 
all,  while  its  disadvantages  are  concealed  from  many. 
Credit  does  not  create,  it  only  transfers  capital.  That 
which  was  previously  in  one  man's  hands  is  by  credit 
transferred  in  its  occupation,  its  use,  to  another.  There 
may  be  a  great  gain  to  the  interests  of  production  in  this 
transfer.  The  owner  may  be  either  unable  or  indisposed 
to  employ  his  capital;  the  borrower  may  have  both  the 
industry  and  skill  requisite  for  its  profitable  use,  and  thus, 
by  the  act  of  credit,  new  returns  be  realized  by  both,  and 
the  general  resources  of  production  augmented.  It  may 
be  thought  that,  while  other  forms  of  credit  only  transfer, 
and  do  not  create  capital,  bank  bills  both  create  and  trans- 
fer capital.  This,  to  a  certain  extent,  is  true.  Those  bills 
which  are  not  based  on  specie,  but  take  its  place,  disen- 
gage large  amounts  before  employed  in  the  home  currency, 
and  enable  them,  as  new  capital,  to  seek  purchases  in  a  for- 
eign market.  The  use  of  all  that  part  of  a  mixed  currency 
which  liberates  specie,  both  from  exchange  and  bank  re- 
serves, is,  as  already  seen,  gained  by  this  device,  and  consti- 
tutes the  peculiar  inducement  to  this  form  of  credit.  So  far 
as  this  may  be  termed  the  creation  of  capital,  it  is  limited  to 


CREDIT.  313 

the  liberated  coin,  which,  redeemed  from  old,  may  be  em- 
ployed in  a  new  service.  There  may  be  an  inflation  of 
currency,  which  may  carry  the  aggregate  amount  of  bills 
not  representing  specie  somewhat,  but  not  much,  beyond 
the  amount  of  specie  displaced.  If  the  movement  is  car- 
ried further,  a  decided  outward  current  will  be  established, 
rapidly  draining  the  currency  of  its  remaining  gold  and 
silver.  A  given  amount  of  business  can  only  give  place 
to  a  given  value  in  currency,  and  any  further  increase  of 
the  medium  will  be  attended  by  a  corresponding  depression 
of  its  value.  The  augmentation  of  capital  by  this  species 
of  credit  tends  rapidly  to  reach  its  limits,  and  thencefor- 
ward stands  on  the  same  basis  as  other  forms,  transferring, 
but  not  increasing  capital. 

The  gains  of  credit  do  not  belong  to  it  in  all  forms. 
The  credit  which  the  industrious  merchant  and  artisan 
extend  to  the  consumer  is  not  usually  attended  with  these 
results.  By  such  credits,  those  engaged  in  production  are 
deprived  of  the  immediate,  the  complete  command  of  their 
resources,  and  this  often  in  favor  of  those  who  are  rela- 
tively unproductive  consumers.  In  this  kind  of  credit, 
neither  party  gains  to  the  full  that  which  is  lost  by  the 
extended  time  of  payment.  The  merchant,  by  the  smaller 
but  more  rapid  and  safe  profits  of  a  cash  system,  is  able  to 
realize  more  than  by  the  dilatory  method  of  book  account. 
The  customer,  in  the  additional  profits  which  he  finally 
pays  the  merchant,  in  the  arrangement  of  his  account, 
should  remember  that  there  is  included  not  only  interest 
for  the  average  time  during  which  the  use  of  capital  has 
been  lost,  but  also  a  percentage  representing  the  bad  debts 

27 


314  POLITICAL   ECONOMY. 

which  are  the  necessary  accompaniments  of  such  a  busi- 
ness. Only  he  who  exacts  prompt  payment,  and  is  very 
vigilant  for  himself,  can  afford  to  sell  cheap.  Credit,  then, 
between  the  producer  and  consumer,  is  as  liable  to  be 
attended  with  loss  as  with  gain. 

Credit,  also,  when  it  becomes  generally  the  basis  of 
ordinary  business,  forfeits  most  of  its  advantages,  and 
rapidly  accumulates  its  dangers.  These  it  will  be  our 
principal  effort,  in  the  present  chapter,  to  make  apparent. 
We  shall  first  mention  some  kinds  of  credit  to  which  real 
gains  attach,  and  which  do  not  endanger  the  general 
interests. 

Known  integrity  and  skill  draw  forth  confidence,  and 
this  confidence  is  a  legitimate  commercial  power  in  the 
person  possessing  it,  placing  him  on  a  higher  platform  of 
advantage.  Each  effort  in  production  prepares  the  way 
for,  and  facilitates  the  succeeding  one,  and  the  increasing 
power  of  labor  and  capital  to  enlarge  their  returns  is  one 
of  the  most  powerful  stimulants  to  industrial  effort.  A 
known  business  character  is  a  power  allied  to  the  actual 
possession  of  capital,  in  the  command  which  it  inevitably 
and  rightly  secures  over  it.  Credit,  which  is  the  transfer 
of  capital  on  adequate  securities,  or  its  loan  to  one  whose 
well-known  character  is  a  sufficient  guarantee,  has  too 
manifest  advantages  ever  to  be  dispensed  with.  Indeed, 
a  valuable  part  of  ownership  lies  in  this  very  ability  to 
transfer  the  use  of  property,  on  conditions  agreeable  to  the 
loaner,  and  more  or  less  advantageous,  as  he  may  wish  to 
make  them,  to  the  borrower.  Private  contracts  and  private 
favors  of  this  character  can  in  no  instance  occasion  any 


CREDIT.  315 

wide  mischief,  and,  in  most  instances,  will  be  a  private  and 
public  gain.  It  is  only  when  credit  is  enlarged  into  a  sys- 
tem, having  no  reference  to  integrity,  or  private  opinion,  or 
good-will,  or  adequate  security,  but  applying  between 
strangers  as  between  friends,  entering  into  the  great  bulk 
of  transactions,  and  having  no  certainty  amid  the  multi- 
plicity of  liabilities  of  securing  either  immediate  or  ulti- 
mate payment,  that  it  becomes  wholly  pernicious. 

Another  form  of  commercial  and  advantageous  credit  is 
that  to  which  reference  has  already  been  made,  the  dis- 
count of  banks  for  short  periods.  These  institutions,  when 
called  upon  to  meet  the  transient  necessities  of  a  business 
having  an  independent  and  substantial  basis  of  its  own, 
can  do  so  with  equal  advantage  to  themselves  and  to  the 
persons  accommodated;  but  are  not  able  to  sustain  and 
nourish  transactions  whose  risk  they  make  their  own,  but 
of  whose  management  and  prospects  they  necessarily 
know  but  little.  These  two  classes  of  credits  lend  them- 
selves to  the  individual  and  the  public  good;  that  by 
which  individuals  in  private  loan  transfer  their  capital  to 
more  unoccupied,  diligent,  or  skilful  hands,  resting  for 
security  on  the  property  or  character  of  the  person  receiv- 
ing it,  and  that  by  which  banks  meet  the  incidental  and 
more  transitory  demands  of  business.  The  extinction  of 
these  forms  of  credit  would  be  to  forfeit  to  all  parties  the 
most  serious  commercial  and  industrial  advantages,  and 
limit  that  confidence  and  good-will  which  are  the  basis  no 
less  of  monetary  than  of  social  intercourse. 

There  is  what  may  be  termed  the  credit  system,  in 
defence  of  which  little  can  be  said,  while  much  against 


31G  POLITICAL  ECONOMY. 

it  stands  unanswerable.  Before  examination  of  it,  we 
need  first  to  look  at  some  of  the  forms  which  credit 
assumes. 

$  2.  Of  the  several  forms  of  credit,  book  account  is  per- 
haps the  most  general.  This  scarcely  needs  an  explana- 
tion. It  dispenses  with  immediate  payment,  and,  if  there 
is  on  each  side  a  corresponding  account,  with  any  ultimate 
payment  save  that  of  the  balance.  In  a  book  account 
there  is  but  a  single  credit  or  series  of  credits,  single  trans- 
actions, and  no  power  to  make  them  the  basis  of  others. 
The  effect  of  this  kind  of  credit  must  depend  on  the  par- 
ticular case  in  which  it  exists,  and  on  how  far  it  becomes 
the  general  method  of  purchase.  A  second  form  is  that  of 
bills  of  exchange.  To  such  a  bill  there  are  three  par- 
ties, —  the  person  drawing  it,  he  in  whose  favor  it  is 
drawn,  and  he  upon  whom  it  is  drawn.  A  may  have  in  a 
distant  city  both  a  debtor  and  creditor ;  he  wishes  to  cancel 
the  one  obligation  by  the  other,  and,  to  accomplish  this, 
gives  an  order  or  bill  of  exchange  directed  to  the  debtor, 
now  termed  the  drawee,  requesting  the  payment  of  a  cer- 
tain sum  to  the  creditor,  now  the  payee.  If  A  have  no 
debtor  at  the  point  at  which  the  payment  is  to  be  made, 
he  may  purchase  such  a  bill.  These  bills,  originally  de- 
signed to  avoid  the  transfer  of  money  between  distant 
places,  are  susceptible  of  a  much  broader  use.  The  bill, 
instead  of  being  made  immediately  payable,  may  have  a 
certain  time  to  run,  and,  endorsed  by  the  holder,  may  be 
discounted  or  passed  from  hand  to  hand.  Distance  is  not 
essential  to  such  a  bill,  but,  drawn  on  those  near  by,  it 


CREDIT.  317 

may,  while  waiting  the  time  of  payment,  circulate  as  a 
medium  of  exchange. 

Another  method  of  credit,  equally  extensive  in  its  appli- 
cation with  the  bill  of  exchange,  is  the  promissory  note. 
These,  in  many  cases,  only  represent  an  indebtedness 
existing  between  two  parties,  without  any  design  of  trans- 
fer. In  other  cases  they  become  a  systematized  method 
of  purchase,  by  which  the  buyer  escapes  immediate  pay- 
ment, and  the  seller  is  enabled  to  realize  at  once  the  price 
of  his  goods.  The  buyer  gives  his  note,  and  this,  endorsed 
by  the  seller,  is  discounted.  It  is  evident  that  the  retailer 
of  these  goods,  purchased  at  a  disadvantageous  credit, 
must  have  proportionate  difficulty  in  realizing  a  fair  profit 
by  their  sale,  and  that  the  seller,  who  has  guaranteed  the 
paper  of  his  many  and  distant  purchasers,  may  be  greatly 
embarrassed  by  any  failure  on  their  part.  A  promissory 
note  may  pass  from  hand  to  hand,  and  become  the  agent 
of  an  extended  exchange.  A  bank  bill  is  a  promissory 
note  payable  on  demand,  and,  different  from  others  of  its 
kind,  usually  involves  a  double  credit,  —  that  of  the  bank 
to  the  person  to  whom  the  bill  is  discounted,  and  that 
of  the  person  holding  the  bill  to  the  bank.  Such  a  note 
may  be  the  unlimited  instrument  of  purchase. 

Checks,  also,  payable  at  some  bank  in  which  the 
giver  possesses  deposits,  are  a  form  of  credit,  and  may, 
by  endorsement,  take  the  place  of  bills  in  ordinaiy  ex- 
change. 

The  state,  also,  may  issue  its  notes,  and  these,  if  in  suf- 
ficiently small  sums  to  take  the  place  of  currency,  will, 
without  bearing  interest,  circulate  freely ;  if  in  large  sums, 

27* 


318  POLITICAL   ECONOMY. 

so  as  to  be  less  available  in  exchange,  they  must,  for  their 
reception,  bear  some  interest. 

These  are  the  leading  forms  which  credit  assumes,  in  all 
of  which  it  acts  on  price,  though  in  some  more  strongly 
than  in  others. 

$  3.  These  forms  of  credit  exist,  and  will  exist,  more  or 
less  extensively,  in  every  commercial  nation ;  and  it  is  only 
where  they  have  become  so  far  systematized  as  to  be  an 
habitual  method  of  payment,  as  to  underlie  a  large  share 
of  the  business  of  a  country,  that  their  effects  are  mani- 
festly injurious.  One  of  the  most  inclusive  of  these  evils 
is  expressed  in  the  following  proposition  : 

Credit  raises  prices,  and  the  more  extended  and  systematic  the  credit, 
the  higher  are  prices. 

We  have  seen,  under  the  discussion  on  value,  that  the 
immediate  price  of  all  things  is  determined  by  the  relation 
of  the  demand  to  the  supply ;  hence  anything  increasing 
the  demand  results  in  an  enhanced  price.  Credit  has  a 
purchasing  power  equal  to  cash,  and  the  sum  of  each 
man's  purchasing  power  is  equal  to  his  cash  and  his  credit. 
If  he  is  confined  or  nearly  confined  to  the  former,  his 
ability  by  actual  purchase  to  enhance  the  demand  will  be 
greatly  restricted;  if  he  can  employ  to  its  utmost  tension 
the  last,  his  purchasing  power  and  his  ability  to  affect  the 
market  will  be  proportionately  augmented.  It  does  not 
indeed  follow,  that  because  a  man  has  credit  he  will  use 
it,  or,  if  he  uses,  will  use  it  to  its  full  extent;  but  a  system 
of  credit  entering  as  a  stated  element  into  the  methods  of 


CREDIT.  319 

business,  shows  not  only  the  existence,  but  a  very  large 
use  of  the  purchasing  power  of  credit,  and  hence  a  pro- 
portionate intensity  of  demand  acting  on  price. 

What  is  to  limit  the  power  of  purchase,  if  credit,  no 
longer  attached  to  property  or  integrity,  can  be  secured  by 
one  almost  a  stranger,  —  if  goods  can  be  purchased,  and 
the  buyer  find  his  notes,  signed  by  the  seller,  discounted 
without  difficulty  ?  Such  a  purchasing  power  is  as  extrava- 
gant as  the  desires  of  men,  rather  than  as  limited  as  their 
abilities.  Under  its  action,  prices,  though  subject  to  rapid 
declines,  cannot  be  otherwise  than  high. 

Some  forms  of  credit,  as  containing  a  greater  purchasing 
power,  act,  according  to  their  amount,  more  strongly  on 
price  than  others.  Book  credit,  though  of  very  broad 
application,  affects  but  one  transaction,  and,  when  existing 
in  large  amounts,  generally  straitens  the  power  of  the  per- 
son in  securing  further  credit.  Credit,  however,  restricts 
less  the  ability  of  the  borrower  than  it  should  —  men  inferr- 
ing as  frequently  from  the  fact  that  one  is  trusted,  that  he 
may  be  trusted,  as  that  the  limit  of  his  credit  is  being 
reached.  Bills  of  exchange  and  promissory  notes  may 
enter  into  a  series  of  transactions,  and  the  credit,  in  this 
form,  of  one  hundred  dollars,  in  its  passage  from  hand  to 
hand,  have  the  purchasing  power  of  thousands.  Especially 
is  this  true  of  bank  bills.  These,  passing  with  even 
more  facility  in  exchange  and  purchase  than  specie  itself, 
have  intrinsically  more  power  over  prices  than  any  other 
form  of  credit.  It  is  through  this  power  that  they  force  out 
specie,  and  make  way  for  themselves  in  the  circulation; 
and  there  is  no  limit  to  this  power,  save  that  which  the 


820  POLITICAL   ECONOMY. 

redemption  in  specie  imposes,  and  the  increasing  difficulty 
of  accomplishing  this,  as  specie  is  exported.  In  a  country 
like  the  United  States,  which  itself  produces  gold  in  large 
quantities,  and  in  which  the  ratio  of  specie  reserves  to 
bank  bills  is  often  very  small,  the  inflation  of  currency  and 
consequent  rise  of  price  may  be  considerable. 

The  high  prices  which  rise  from  a  system  of  credit  are 
not  alone  the  result  of  the  additional  purchasing  power 
which  this  system  is  able  so  rapidly  to  develop,  and  by 
which  a  reckless  competition  forces  up  price,  but  also  of 
the  greater  risk  and  delay  which  attach  to  this  method. 
Both  of  these  are  very  serious  items.  Where  every  tenth 
or  hundredth  debt  is  to  fail  of  payment,  there  must  be  the 
addition  of  ten  or  one  per  cent,  to  the  price  of  all  goods. 
When  there  is  a  delay  of  six  months  in  payment,  there 
must  be  an  addition  of  three  or  four  per  cent,  to  the  first 
cost.  These  successive  charges,  when  the  goods  have 
passed  through  several  hands,  in  each  case  purchased  on 
credit,  will  very  seriously  augment  their  price.  It  is  only 
that  facility  of  purchase,  that  disregard  of  consequences 
which  credit  begets,  that  will  endure  such  prices.  A  pur- 
chase which  promises  some  gain  and  demands  no  imme- 
diate sacrifice,  the  heedless  at  least  will  make. 

It  may  be  said,  as  credit  creates  no  capital,  and  debts 
must  ultimately  be  paid  out  of  existing  capital  and  its 
profits,  it  cannot  increase  the  real  purchasing  power  of  a 
community,  nor  permanently  enhance  price ;  this  is  true. 
In  a  period  of  fifty  years,  the  purchase  payments  made  by 
a  community  operating  on  the  credit  system  would  un- 
doubtedly be  considerably  less  than  those  of  a  community 


CREDIT.  321 

conducting  its  exchange  on  the  cash  principle.  In  the  last 
case,  goods  would  be  obtained  cheaper  from  abroad,  and 
transferred  more  cheaply  from  hand  to  hand  at  borne; 
hence,  with  equal  productive  power  in  the  two  com- 
munities, the  purchases  of  the  second  would  be  more 
economical,  and  might  be  greater  than  those  of  the  first. 
Credit  undoubtedly  weakens  the  valid  purchasing  power 
of  those  employing  it ;  but  this  is  not  in  conflict  with  what 
has  been  said  of  its  effect  on  prices.  Credit  is  capable  of 
rapid  expansion,  can  be  drawn  out  into  more  sudden  and 
extensive  purchases  than  cash,  and  hence,  for  a  limited 
period,  may  have  a  stronger  effect  on  prices.  Especially 
is  this  true  in  connection  "with  issues,  which,  expelling 
specie,  give  the  use  of  additional  capital,  and  inflate  the 
currency.  Such  a  rise  of  prices,  when  credit  can  no 
further  be  extended  and  payment  no  longer  deferred,  is 
indeed  followed  by  a  violent  depression.  But  this  depres- 
sion, far  from  counteracting  the  evils  of  high  prices,  only 
adds  its  own  thereto.  Nor  is  the  credit  which  has  pro- 
voked this  rise  of  prices  always  sustained.  Many  of  the 
debts  are  never  paid,  and  a  power  which  has  stalked 
through  the  market,  extending  its  purchases  as  if  possessed 
of  the  lamp  of  Aladdin,  has,  when  bills  matured,  vanished 
like  a  spirit.  The  fact,  then,  that  all  credits  are  not  met, 
and  the  elastic  nature  of  this  power,  sufficiently  explain 
its  ability  to  enhance  prices,  though  prices  may  shortly  fall 
to  a  still  greater  extent.  It  tends  to  produce  an  inequality 
of  prices ;  these,  for  the  major  part  of  the  time,  slowly 
gain,  till  at  length,  by  a  more  rapid  movement,  they  have 
passed  considerably  above  the  true  level,  and  then  sinking 


822  POLITICAL   ECONOMY. 

by  a  precipitate  fall,  they  pass  much  below  that  level. 
This  will  be  further  illustrated  in  a  succeeding  section. 

$  4.  Chief  among  the  evil  effects  of  prices  made  high  by 
credit,  is  that  upon  currency.  These  prices  induce  a  lnrge 
importation,  leaving  a  balance  to  be  met  by  the  abduction 
of  specie.  Nor  does  this  tendency  have  any  definite 
limits.  Credit,  elastic  and  ductile,  enters  in  to  take  the 
place  of  the  coin  withdrawn,  and  prices  remaining  the 
same,  still  further  payments  are  made  necessary.  By 
this  means  the  currency  becomes  more  and  more  embar- 
rassed —  more  and  more  of  a  local,  fictitious,  and  artificial 
character. 

These  prices  also  discourage  home  industry.  All  things 
purchased  at  home  are  for  the  manufacturer  high;  his 
goods,  therefore,  must  bear  a  correspondingly  high  price. 
But  goods  from  abroad  can  still  be  exchanged,  on  the  old 
terms,  for  gold  and  silver;  and  hence,  in  the  home  market, 
he  is  readily  undersold.  Neither  in  the  foreign  market  can 
he  make  sales  for  cash  to  the  same  advantage  as  formerly, 
since  at  home  gold  is  a  depreciated  commodity.  In  the 
home  market  he  is  readily  undersold,  and  forced  into  the 
foreign  market.  But  even  here,  if  thrown  into  competi- 
tion with  the  same  goods  brought  by  a  foreign  vessel,  he 
may,  in  a  traffic  for  the  precious  metals,  be  undersold,  and 
can  only  protect  himself  by  a  repurchase  of  goods  for  the 
home  market. 

High  prices  in  all  commodities  save  gold  and  silver,  it 
will  be  seen,  does  not  present  the  same  case  as  that  already 
treated,  in  which   high  wages,   affecting  the  cost  of  all 


CREDIT*  823 

products,  were  shown  not  to  modify  foreign  trade.  On 
that  supposition,  values  were  equally  affected  by  the  in- 
creased cost  of  production ;  now,  there  is  a  most  radical 
exception,  —  that  of  coin,  —  and  through  this  exception 
the  whole  burden  of  high  prices  may  be  thrown  on  home 
industry. 

Another  disadvantage  arising  from  a  system  of  credit  is 
the  reduction  of  real  purchasing  power.  Important  ele- 
ments in  the  enhanced  prices  are  additional  risk  and  loss 
of  time  in  the  use  of  capital.  For  this  there  is  usually  no 
compensation;  it  is  a  mere  waste  of  purchasing  power 
by  its  anticipation.  The  whole  community  buy  to  less 
advantage,  and  consequently  have  less  ability  to  buy  than 
if  the  power  were  more  economically  used. 

The  effect  which  the  credit  system  has  on  the  commer- 
cial integrity  of  men  —  the  basis  of  all  permanent  suc- 
cess —  should  be  observed.  Nothing  can  be  easier  than 
fraud  under  such  a  system.  The  young  man,  with  no 
reputation  for  skill  or  honesty,  and  but  little  property, 
makes  a  large  purchase,  on  six  months'  credit,  and  removes 
the  goods  to  a  distant  place ;  he  may  there  effect  rapid 
sales  at  reduced  prices,  pocket  the  avails,  and  decamp. 
Or,  with  more  honesty  and  less  thrift,  he,  in  turn,  may  give 
credit,  and,  making  but  few  profitable  sales,  find  the  goods 
scattered,  and  himself  unable  to  meet  his  obligations.  In 
such  a  system,  the  reward  of  property,  skill,  and  integrity, 
are  greatly  reduced.  No  man  finds  it  necessary  to  bring 
these  to  the  loan  market.  Money  and  goods  are  ready  on 
hard  conditions  indeed;  but  he,  with  the  same  spirit,  can 
still  further  raise  the  prices,  and  pass  on  the  burdened 


324  POLITICAL   ECONOMY. 

product.  Is  it  strange  that  a  reckless,  speculating  spirit 
should  be  the  first-born  of  such  a  system;  that  patient, 
plodding  industry  should  be  regarded  as  a  poor,  stupid 
substitute  for  enterprise,  and  a  general  crash  as  a  joke  on 
a  large  scale  ?  Men  who  work  with  that  which  is  not  their 
own  have  not  the  same  motives  to  caution ;  the  losses  are 
not  theirs ;  and  they  come  out  of  a  business,  totally  wrecked, 
with  nearly  all  with  which  they  entered  it.  They  had  but 
little  business  character  to  lose,  and  where  bankruptcies 
are  frequent,  they  have  proportionately  less  power  to  affect 
reputation.  The  results  of  indolence  and  heedlessness 
are  not,  under  such  a  system,  suffered  to  follow  men.  An 
easy  law  of  bankruptcy  is  its  necessary  and  natural  supple- 
ment, and  any  permanent  accident  is  to  the  reckless  spec- 
ulator impossible ;  not  so  to  his  victims. 

Another  consideration,  even  more  important  than  the 
preceding,  is  the  general  insecurity  of  every  such  system, 
l'his  insecurity  ultimately  manifests  itself  in  the  crash  of 
tvhat  is  termed  a  crisis,  and  demands  a  distinct  treatment. 

$  5.  When,  in  any  community,  the  difficulty  of  meeting 
sndebtedness  becomes  great  and  general,  and  is  attended 
with  extensive  failures,  there  is  said  to  be  a  commercial 
crisis.  These  have  been  of  not  unfrequent  occurrence  in 
the  great  commercial  nations  of  modern  Europe,  and  have 
resulted  in  rapid  and  startling  losses,  and  in  the  temporary 
embarrassment  or  paralysis  of  every  branch  of  industry. 
The  indirect  and  less  observable  losses  of  such  a  crisis  are 
often  much  greater  than  those  manifest  ones  which  fill  the 
public  eye.     The  loss  of  confidence,  and  the  general  sus- 


CREDIT.  olio 

pension  of  industry,  greatly  diminish  the  products  of  the 
succeeding  months  and  years.  So  certainly  have  these 
crises  returned,  with  but  short  intervening  periods,  that 
some  have  been  tempted  to  regard  them  as  parts  of  neces- 
sary cycles  —  of  fixed  commercial  revolutions  —  as  the  in- 
evitable spasms  to  which  the  economic  body  is  subject. 
The  movements  in  different  parts  of  this  orbit  vary 
greatly  in  rapidity.  The  return  from  the  most  extended 
credit  and  utmost  freedom  of  speculation,  to  entire  distrust 
and  suspicion,  is  precipitate;  while  the  progress,  through 
returning  confidence,  first  to  enlarged,  and  then  to  insecure 
credit,  is  comparatively  slow.  The  one  movement  may 
be  completed  in  a  few  months;  the  other,  judging  by 
recent  experience,  occupies  from  ten  to  twelve  years. 

That  there  are  forces  winch  readdy  manifest  themselves 
in  this  revolution  between  the  poles  of  extended  credit 
and  bankruptcy,  there  can  be  no  doubt;  but  it  is  equally 
certain  that  these  forces  are  largely  under  control,  and  that 
their  movement  may  be  greatly  modified  or  entirely  sus- 
pended. No  crisis  can  exist  without  extended  credit,  since 
a  crisis  is  no  other  than  a  general  pressure  for  payment. 
Unsafe  credit  is  the  common  quality,  the  provoking  cause 
of  all  crises.  Anything  which  reduces  credit,  destroys  its 
systematic  application,  and  makes  it  firm,  though  not  able 
to  impart  a  uniform  prosperity,  will  largely  remove  these 
destructive  scourges  of  the  commercial  world. 

Crises,  though  agreeing  in  the  procuring  state,  —  that  of 
large  indebtedness,  with  an  inability  of  immediate  pay- 
ment,—  have  not  necessarily  the  same  antecedents.  They 
arise  under  a  credit  system,  and  when  once  in  full  force, 

28 


326  POLITICAL  ECONOMY. 

are  seldom  expended  till  they  have  passed  through  all 
associated  communities  possessed  of  kindred  systems. 
They  can  scarcely  arise  in  connection  with  a  system  of 
cash  exchanges;  nor  will  a  community  whose  basis  of 
business  is  such  a  system,  receive  or  pass  them  by  con- 
duction. 

A  system  of  credit  is  capable  of  great  extension,  and  by 
a  slow  growth  tends  thereto.  The  use  of  capital  confers 
many  advantages,  and  when  this  can  be  readily  obtained, 
many  are  desirous  to  avail  themselves  of  it.  While  credit 
is  yet  within  narrow  limits,  payments  are  met,  and  a  gen- 
eral feeling  of  security  is  felt.  The  prosperity  which 
accompanies  the  revival  of  confidence,  and  the  many 
advantages  which  it  is  seen  to  confer,  make  all  forgetful 
of  the  severe  lesson  just  acquired  of  the  dangerous  nature 
of  credit ;  and  this  is  felt  to  be,  as  for  a  time  it  is,  both 
the  result  and  cause  of  returning  business.  The  limits 
of  safe  credit  are  not  clearly  marked ;  many  of  the  most 
precarious  and  worse  cases  of  credit  are  not  generally 
known,  and  there  seems  to  most  a  margin  of  advantage 
which  may  be  still  further  occupied.  With  imperceptible 
but  certain  progress,  credit  extends  itself  and  establishes  it- 
self as  a  system,  —  a  common  and  well-recognized  method, 
which,  with  certain  fixed  forms  of  security,  it  is  thought, 
sufficiently  guards  itself,  and  demands  no  peculiar  super- 
vision. Liabilities  become  greater,  more  general,  and 
times  longer.  Credit  thus,  not  simply  restored,  but  ex- 
tended and  systematized,  the  essential  element  in  the 
preparation  is  completed  for  the  succeeding  crisis.  This 
may  be  provoked,  in  the  first  case,  by  any  unusual  ex- 


CREDIT.  327 

penditures,  as  on  railroads  ;  or  payments,  as  those  to  for- 
eign countries ;  or  losses,  as  those  of  agriculture,  —  which 
reduce  the  resources  of  community,  and  thus  straiten  its 
power  to  meet  its  obligations  rapidly  becoming  due.  An 
ordinary  amount  of  credit,  with  the  failure  of  the  ordinary 
means  of  payment,  may  force  many  into  bankruptcy. 

A  second  and  more  frequent  provoking  cause  is  the 
presence  of  inducements  for  a  still  further  and  more  rapid 
extension  of  credit.  It  is  thought  that  the  supply  of  some 
commodities  is  deficient,  and  that  large  sums  can  be  made 
by  their  purchase  and  by  their  sale,  when  the  rise  conse- 
quent on  scarcity  shall  have  taken  place.  These  expecta- 
tions may  be  well  based  in  one  or  more  departments ;  but 
a  speculative  movement,  once  started,  is  not,  with  the  facili- 
ties afforded  by  credit,  likely  to  be  always  wise  in  its 
direction,  or  easily  restrained.  The  larger  purchases  first 
made  immediately  raise  the  price  of  those  commodities 
towards  which  attention,  in  the  earlier  stages,  has  been 
directed.  The  promise  of  decided  gains  seems  strong, 
and  occasional  sales  realizing  large  profits  inflame  desire. 
While  prices  are  still  rising,  the  opportunity  seems  not 
wholly  lost,  and  by  new  purchases  prices  advance  still 
further.  Many,  who  have  had  no  part  in  this  movement, 
are  made  uneasy,  and  are  ready  to  believe  that  there  may 
be,  in  other  directions  and  in  other  commodities,  the  possi- 
bility of  equally  rapid  gains.  A  purchase  is  made,  and 
they  see  in  the  consequent  rise  of  price  a  justification  of 
their  sagacity.  Further  purchases  are  made,  and  a  large 
rise  of  value  in  many  directions  follows.  Now  comes  the 
difficulty ;  allNare  about  to  realize  great  gains,  but,  with  the 


328  POLITICAL  ECONOMY. 

exception  of  a  few  fortunate  or  sagacious  persons,  have 
not  yet  realized  them.  Prices  begin  to  waver,  and  it  is 
thought  best  to  close  in  at  the  climax.  Large  quantities 
of  products  are  thrown  upon  the  market;  but,  all  beginning 
to  feel  that  the  movement  has  expended  itself,  few  are 
found  willing  to  buy.  Prices  sink  at  once,  and  a  rapid 
decline  still  further  reduces  the  number  of  purchasers,  and 
makes  the  anxiety  of  the  sellers,  with  whom  every  hour 
is  the  displacement  of  imagined  gains  with  real  losses,  but 
the  more  frantic.  Under  such  circumstances,  nothing  can 
save  prices  in  all  departments  from  a  fall,  even  more 
extravagant  and  precipitate  than  the  previous  rise ;  and 
those  upon  whom  the  trap  has  closed,  and  who  have  forced 
themselves  fully  in,  by  the  utmost  extension  of  their  credit, 
form  a  bankruptcy  well-nigh  total. 

But  in  a  community  whose  system  is  credit,  there  is  no 
such  thing  as  a  single  failure.  All  are  in  a  state  of  unsta- 
ble equilibrium.  Every  business  transaction  is  on  its 
narrowest  base,  and  the  falling  of  one  is  the  signal  for  the 
bowing  of  the  whole  column.  The  increasing  ruin  precip- 
itates itself  with  melancholy  crash  on  good  and  bad  alike, 
and  men  find  sad  consolation  in  the  extended  companion  - 
ship  of  misery. 

$  6.  It  is  hardly  necessary  to  add  further  proof  to  the 
following  proposition : 

A  crisis  is  the  natural  issue  of  a  system  of  credit. 

It  is  the  elasticity  of  credit  which  makes  extended  spec- 
ulation  possible.      The   transactions   in   one   department 


CREDIT.  329 

impose  little  or  no  restraint  on  those  in  another.  If  pur- 
chases were  made  with  cash,  the  purchase  power  could 
not  exceed  the  power  of  payment ;  and  as  this  became 
exhausted  by  operations  in  one  direction,  there  would  be 
no  ability  left  to  force  up  prices  by  a  kindred  action  in 
other  directions.  Credit,  on  the  other  hand,  having  no 
well-defined  limits,  may  be  employed  at  once  in  many 
transactions,  and  act  on  prices  through  a  great  variety  of 
channels.  There  may  indeed  be  serious  loss  from  indiscreet 
speculation,  though  the  medium  of  purchase  be  cash ;  but 
that  loss  would  not  provoke  a  general  insolvency,  or,  run- 
ning along  the  lines  of  indebtedness,  occasion  that  wide- 
spread failure  which  is  the  characteristic  of  a  crisis. 

It  is  the  instability  of  business  —  the  want  of  a  broad  and 
independent  basis  for  each  single  system  of  operations  — 
characterizing  a  credit  system,  that  makes  a  few  losses  so 
destructive.  Such  a  community  is  all  ready  for  an  explo- 
sion. Indebtedness  is  so  general  and  so  complicated,  that 
the  ability  of  each  depends  on  the  ability  of  many  others, 
and  the  losses  of  one  become  the  losses  of  all.  Few 
are  in  their  own  hands,  or  solely  dependent  on  their  own 
skill  and  diligence.  The  mismanagement  or  roguery  of  a 
few  parties  embarrasses  and  perhaps  destroys  the  prudence 
and  industry  of  many.  Such  a  community  is  a  commer- 
cial magazine,  with  trails  running  in  every  direction,  which 
the  carelessness  or  villany  of  anybody  may  fire.  A  real 
loss  falling  upon  a  trade  so  situated,  cannot  fail  to  work  a 
crisis  —  cannot  fall  short  of  an  extensive  ruin. 

These  results,  however  much  to  be  deprecated,  are  not 
to  be  ascribed  to  any  single  class,  but  are  rather  the  com- 

28 


830  POLITICAL   ECONOMY. 

bined  result  of  the  action  of  many  under  a  vicious  system. 
We  may  speak  strongly  about  speculation,  but  speculators 
have  a  legitimate  and  valuable  service  to  perform,  and  one 
which  they  will  continue  to  perform,  however  much  the 
abuses  to  which  this  business  is  open  may  evoke  of  pub- 
lic censure.  He  who  in  produce  stands  between  the  seller 
and  buyer,  has  the  same  province,  and  is  as  useful,  as  the 
merchant.  He  who,  foreseeing  a  real  scarcity,  buys  pro- 
duce in  preparation  for  the  rise,  confers  a  real  benefit.  By 
anticipating  a  pressure  still  future,  he  spreads  it  over  a 
larger  surface,  and  reduces  it  in  intensity.  His  purchases, 
while  the  article  is  yet  cheap,  raise  the  price,  and  induce 
general  economy.  When  the  want  has  actually  overtaken 
the  people,  his  sales  lower  the  price,  and  minister  to  the 
necessity.  His  reserved  supplies  are,  to  years  of  famine, 
like  those  of  Joseph.  It  is  the  tendency  of  speculation  to 
excess,  occasioning  a  fictitious  rise  of  prices,  the  dishonest 
methods  with  which  it  has  sometimes  been  pursued,  and 
the  fact  that  its  gains  often  come  in  connection  with  gen- 
eral loss,  that  have  excited  against  it  so  indiscriminate  a 
prejudice. 

Nor  are  banks  peculiarly  the  guilty  agents  in  every  com- 
mercial embarrassment.  At  most,  they  have  but  shared 
the  general  tendency,  and  concurred  in  securing  the  gen- 
eral misfortune.  A  crisis  may  be  provoked  by  extensive 
book  credit,  with  but  slight  assistance  from  the  still  more 
efficient  form  of  credit  —  bank  bills.  Indeed,  as  a  matter 
of  fact,  many  crises  have  been  so  provoked,  and  have  not 
been  preceded  by  any  unusual  issues.  In  our  own  coun- 
try, however,  the   more   recent   crises   have   occurred  in 


CREDIT.  BSI 

connection  with  a  very  full  paper  currency.  The  indis- 
pensable element  is  credit ;  the  form  of  that  credit  is  com- 
paratively unimportant. 

The  credit  which  banks  afford,  while  purchases  are  yet 
numerous,  and  when  the  pressure  arising  from  the  effort 
to  sell  has  not  yet  commenced,  should  be  distinguished 
from  that  which  they  may  afford  after  the  crisis  is  fairly 
ripened,  and  great  losses  are  being  suffered  from  forced 
sales  in  a  market  whose  prices  are  much  below  their  natu- 
ral level.  All  who  are  able,  or  can  possibly  secure  aid, 
wish  to  defer  sales  till,  the  panic  having  subsided,  ordinary 
prices  can  be  secured.  That  they  should  do  this  is  desira- 
ble for  all  parties, — not  less  for  their  creditors  than  for 
themselves.  Much  of  the  ruin  which  a  panic  occasions 
arises  solely  from  the  unreasonableness  of  fear,  and  not 
from  any  intrinsic  necessity,  —  a  ruin  which  all  parties  help 
to  pluck  upon  themselves  by  their  precipitation.  All  goods 
which  are  forced  into  the  market,  carry  prices  lower  and 
lower;  all  which  are  retained,  leave  it  the  more  quickly 
to  right  itself  and  revert  to  a  healthy  state.  But,  as 
all  the  available  means  of  many  are  represented  in  the 
goods  which  they  have  unwisely  purchased,  or  in  property 
now  much  reduced  in  value,  when  the  claims  upon  them 
mature,  there  is  no  resource  left  but  the  losses  of  a  sale, 
whatever  these  may  be,  unless  an  extension  of  credit,  or 
further  discount  at  the  bank,  can  be  afforded  them.  It  is 
vain  to  look  for  the  former,  and  the  latter  alone  can  render 
that  aid  by  which  bankruptcy  may  be  evaded,  and  a  rem- 
nant of  ability  and  opportunity  be  retained,  with  which  to 
render  available  the  new  and  dear-bought  experience. 


332  POLITICAL  ECONOMY. 

But,  in  order  that  the  banks  may  render  this  great  ser- 
vice in  reducing  the  panic  and  ruin  of  a  crisis,  and  in 
helping  all  out  who  are  capable  of  preservation,  it  is 
evident  that  they  must  not  themselves  be  involved  in  the 
same  embarrassments.  If  their  discounts  and  circulation 
have  been  extended  even  up  to,  or  not  much  beyond,  the 
limits  of  ordinary  times,  in  these  emergencies  all  their 
strength  will  be  required  to  meet  their  own  liabilities; 
and  that  they  may  the  more  successfully  do  this,  there 
Will  be,  far  from  an  extension,  a  rapid  retrenchment  of 
discounts.  This  resource  failing,  even  in  its  accustomed 
aid,  every  man  will  be  left  to  sink  amid  his  own  difficul- 
ties. The  inability  of  banks  at  such  times  to  afford  their 
ordinary  assistance,  to  which  they  may  be  said  to  be  in 
some  sense  pledged,  is  undoubtedly  a  principal  reason 
why  so  many  are  ready  to  attribute  the  whole  calamity  to 
them.  They  forget  that,  as  the  folly  has  been,  so  is  the 
danger,  universal,  and  that  the  law  of  self-preservation  is 
now  the  first  law  of  all.  If  there  was  security  at  one 
point,  from  this,  there  might  go  forth  relief  that  would  res- 
cue many.  The  reason  that  banks  usually  fail  of  render- 
ing any  adequate  aid,  is  simply  because  they  are  in  the 
stream,  and  not  upon  the  shore.  The  most  reliable,  and, 
to  the  business  world,  the  most  valuable  firms  may  be  em- 
barrassed —  may  find  all  their  resources  just  beyond  their 
immediate  reach,  and  the  most  unnecessary  and  exasper- 
ating losses  forced  upon  them,  solely  because  the  accom- 
modation which  they  have  all  along  received  is  no  longer 
given  them.  The  bank,  insecure  on  its  own  footing,  must 
instantly  shake  off*  every  dependant.     It  is  only  to  those 


CREDIT.  333 

who  need  no  aid  that  it  is  safe  to  give  aid.  There  must 
belong  to  those  institutions,  which  are  to  reduce  and  con- 
trol a  crisis,  the  most  absolute  stability. 

The  evils  now  pointed  out  as  the  result  of  a  credit 
system,  are  not  abated  by  the  low  prices  and  the  reaction 
which  follow  the  completion  of  the  cycle  in  a  universal 
crash.  All  business  is  for  the  time  being  suspended ;  there 
is  a  general  paralysis  —  a  want  of  confidence,  which  de- 
stroys the  old  methods,  without  supplying  their  place. 
Trade  is  not  left  in  sufficient  force  to  materially  affect  or 
compensate  the  results  already  occasioned  by  previous 
high  prices  and  foreign  imports.  The  most  healthy  stage 
in  all  the  orbit  of  credit  is  that  which  immediately  suc- 
ceeds the  state  of  distrust  —  when  business  is  reviving, 
when  the  admonition  of  a  fresh  experience  has  not  yet 
been  forgotten,  nor  time  been  given  for  the  credit  system 
to  restore  itself  in  its  broader  and  more  luxuriant  forms. 
The  moment,  however,  the  growth  becomes  decided,  the 
evil  begins  to  renew  itself,  and  to  make  ready  a  harvest 
of  fresh  disasters. 

It  is  not  upon  credit,  but  upon  a  systematized  and  ex- 
tended credit,  —  the  unreliable  basis  of  all  business,  —  that 
the  evils  and  dangers  now  enumerated  are  chargeable.  A 
limited  credit  has  no  greater  enemy  than  an  unlimited  and 
general  credit.  It  is  this  which  involves  the  former  in  its 
own  destruction,  and  gives  to  all  loans  the  cost  and  sem- 
blance of  uncertainty. 


CHAPTER   VI. 

CURRENCY. 

$  1.  Gold  and  silver,  though  everywhere  the  basis  of 
currency,  are  not  everywhere  its  substance.  These  metals, 
in  their  intrinsic  fitness,  in  their  universality,  in  their  high 
and  firmly-sustained  value,  have  established  themselves 
throughout  the  civilized  world  as  the  medium  of  national 
and  international  exchange.  This  very  universality  of  use 
still  further  aids  them  in  performing  their  functions.  So 
vast  is  the  sum  now  in  the  world's  possession,  that  no 
catastrophe,  no  loss,  can  sensibly  affect  its  value  ;  so  uni- 
versal and  constant  is  the  demand,  that  none  but  the  most 
unusual  supplies  can  at  all  modify  or  reduce  it.  It  is  the 
breadth  of  the  ocean,  as  it  stretches  into  either  hemis- 
phere, and  gathers  the  waters  of  either  shore,  which  makes 
it  a  receptacle  never  full,  a  storehouse  never  exhausted, 
—  which  makes  it  lie  under  the  thirsty  equator  without 
loss,  and  the  streaming  tropics  without  gain.  A  currency 
which  suffers  the  waste,  and  gathers  the  increase  of  a 
world,  must  have  something  of  the  same  dimensions. 

The  economy  of  paper  money  has  seemed  so  obvious, 
the  immediate  gain  of  individuals  so  tempting,  that,  in 
many  instances,  a  mixed  currency  has  been  established, — 
bank  bills,  resting  on  a  broader  or  narrower  basis  of  specie, 


CURRENCY.  S35 

taking  the  place  of  coin.  These  bills,  redeemable  in  the 
precious  metals,  have,  in  ordinary  states  of  the  market, 
found  free  circulation,  and  discharged  their  office  well; 
but,  in  all  critical  cases,  when  the  panic  has  been  general 
and  the  pressure  great,  have,  with  very  few  exceptions, 
been  found  to  exist  in  excess,  and  to  add  to  the  confusion 
a  disordered  currency  and  a  general  suspension  of  specie 
payment.  Especially  has  this  been  so  in  the  United 
States,  where,  the  general  government  having  cut  itself 
loose  from  the  currency,  and  made  no  provision  for  other 
payments  than  those  into  its  own  coffers,  each  state  has 
been  left  to  its  own  action,  and  no  well-tried  and  self- 
consistent  system  has  prevailed.  It  is  one  of  the  most 
obvious  and  important  duties  of  government  to  establish 
and  regulate  the  currency ;  and  if  that  currency  is  to  be  a 
mixed  currency,  it  constitutes  no  adequate  provision  to 
mint  coin,  which,  though  the  basis  of  value,  is,  in  actual 
exchange,  but  a  secondary  and  subsidiary  element. 

In  a  currency  so  largely  reduced  as  is  our  own,  mixed 
to  the  last  degree  with  bills  of  every  shade  of  value,  it  is 
but  an  easy  and  pitiful  part  of  the  labor  to  stamp  and  send 
forth  the  coin,  while  that  other  most  Protean  and  danger- 
ous element  is  left  altogether  without  guidance  or  re- 
straint; when  men  need  it  least,  enlarging  without  limit, 
and  when  they  need  it  most,  vanishing  like  a  myth. 

Nor  are  the  states  prepared  to  take  up  successfully  this 
work  which  has  fallen  upon  them.  They  are  but  limited 
communities  within  a  much  larger  community ;  their  laws 
have  no  force  outside  their  own  narrow  bounds;  and  the 
wisest   regulations    are    instantly  set  at  naught,  by  not 


336  POLITICAL   ECONOMY. 

extending  to  those  with  whom  they  are  in  daily  and  hourly 
intercourse.  Indeed,  some  principles,  thoroughly  estab- 
lished and  generally  admitted,  if  embodied  in  the  laws  of 
any  one  state,  might  work  great  mischief,  and,  at  best, 
could  work  but  a  very  partial  good.  Such  an  one  is  the 
prohibition  of  bills  under  five  dollars.  For  a  small  com- 
munity, in  the  midst  of  others,  to  pass  this  principle  into  a 
law,  without  concurrent  action  on  their  part,  would  be  to 
exclude  its  own  bankers,  in  order  that  the  field  might  be 
occupied,  and  that  less  safely  and  advantageously,  by  those 
of  neighboring  states.  As  fast  as  specie  should  accumu- 
late, under  such  a  regulation,  other  causes  would  enter  in 
to  dissipate  it.  To  the  degree  in  which  it  did  accumulate, 
coin  would  be  more  readily  obtained  in  such  a  community 
than  in  adjoining  states.  It  would  be  the  field,  therefore, 
to  which  the  banks  of  these  states  would  resort  to  secure 
their  reserved  specie.  These  banks,  finding  a  new  open- 
ing, would  naturally  enter  on  it  with  avidity ;  and  as  fast 
as  coin  showed  any  indication  of  increase  in  the  state 
making  the  restriction,  it  could  be  readily  gathered  up  and 
exchanged,  at  a  slight  profit,  for  the  small  bills  of  neigh- 
boring banks,  and  furnish  them  the  basis  of  further  issues. 
It  is  a  general  law,  that,  in  a  currency  consisting  of  two 
media,  one  of  which  has  so  depreciated  that  its  real  is 
below  its  nominal  value,  the  medium  which  has  fallen  in 
value  drives  out  that  which  retains  its  value.  This  has 
already  been  shown  in  the  case  of  gold  and  silver.  If 
silver  is  ranked  too  high  in  the  currency,  the  holder  of  gold 
is  perpetually  seeking  to  transform  it  into  silver,  that  he 
may  gain  the  additional  paying  power  which  belongs  to 


CURRENCY.  337 

this  metal.  So  if,  by  any  combination  of  circumstances, 
bills  are  at  a  slight  discount  in  the  currency  of  which  they 
form  a  part,  which  discount  is  saved  by  circulating  them, 
and  lost  by  returning  them  to  the  bank,  they  act  as  a 
depreciated  medium,  crowding  out  the  better  medium, 
which  retains  its  full  value. 

When  a  large  amount  of  bills  is  in  circulation  at  a  dis- 
tance from  the  banks  issuing  them,  this  unfavorable  com- 
bination occurs.  The  Boston  city  banks  were  led,  through 
the  action  of  this  principle,  to  force  on  the  country  banks 
the  redemption  of  their  bills  at  the  city  bank  of  Suffolk. 
The  bills  of  country  banks,  not  being  redeemable  in  Bos- 
ton, were  at  a  slight  discount ;  all,  therefore,  holding  these 
bills  and  also  the  bills  of  city  banks,  laid  the  former  aside 
for  contingent  expenses  and  daily  use,  and  presented  the 
latter  to  the  banks  for  deposit  and  for  specie.  For  the  first 
of  these  uses,  the  bills  of  country  banks  were  equal  in 
value  to  those  of  city  banks;  for  the  second,  they  were 
not.  They  therefore,  day  by  day,  took  more  complete 
possession  of  the  circulation,  while  the  city  banks  found 
their  bills  constantly  returning  on  deposit  and  in  search  of 
specie. 

This  same  combination  of  circumstances  would  again 
arise,  in  case  any  one  state  should  exclude  its  own  small 
bills  from  the  circulation.  Bills  from  a  distance  would  not 
be  readily  returned  for  redemption  ;  they  would  conse- 
quently be  at  a  slight  discount,  and  thus  gain  power  to 
force  their  way  in,  and  crowd  out,  not  only  the  specie  with 
which  it  was  sought  to  replace  the  expelled  bills,  but  also 
the  bills  of  a  larger  denomination,  belonging  to  the  banks 

29 


338  POLITICAL   ECONOMY. 

of  the  state  suffering  under  au  intrinsically  good  regula- 
tion. It  would  only  be  specie  and  the  home  bills,  that 
could  meet  the  severer  tests  of  currency,  that  could  be 
received  as  deposits  and  go  abroad ;  and  this  office,  there- 
fore, would  fall  exclusively  to  this  part  of  the  currency. 
The  inferior  part  of  the  currency  could  only  equal  the 
superior  in  the  function  of  daily  circulation,  and  this  it 
would  be  left  to  discharge. 

A  movement  in  this  direction  toward  reform,  on  the  part 
of  any  one  state,  unaided  by  adjoining  states,  and  with  no 
power  to  force  its  regulations  upon  them,  might  result  only 
in  greater  embarrassment,  —  in  a  currency  more  discordant, 
mixed,  and  fluctuating,  than  ever.  This  same  principle 
would  come  in  to  perplex  and  thwart  almost  any  measure 
which  a  single  state  might  adopt  for  securing  a  homogene- 
ous and  firm  currency.  The  very  act  by  which  its  own 
media  of  exchange  were  lifted  to  a  perpetual  par,  would 
open  the  way  for  every  inferior  media  to  creep  in  and  expel 
the  new  and  more  valuable  currency.  The  better  the  home 
currency  was  made,  the  greater  its  liability  to  be  fed  upon 
and  devoured  by  the  vagrant,  hungry  poverty  of  its  neigh- 
bors. Not  only  must  the  currency  of  every  state  suffer 
from  the  defects  existing  in  that  of  every  other,  but  every 
effort  to  redeem  itself  draws  these  upon  it  in  greater 
abundance.  The  locusts  are  in  the  air,  and  they  light  on 
the  greenest  spot. 

The  act  of  the  general  government,  by  which  it  cut 
itself  loose  from  this  mixed  currency,  and  established  for 
itself,  in  the  sub-treasury,  a  pure  metallic  currency,  was 
not  less  the  confession  of  a  necessity  —  a  duty  —  than  the 


CURRENCY.  339 

abandonment  of  that  duty.  A  currency  which  develops  its 
weakness  and  inadequacy  in  the  large  transactions  of  the 
general  government,  thereby  confesses  itself  unable  to  per- 
form well  the  multiplied  duties  of  private  exchange.  The 
evil  may,  in  the  last  office,  be  more  disguised  by  the  nature 
of  the  reduced  exchanges,  but  does  not  less  really  exist. 
Not  only  has  no  currency  been  founded  by  the  general 
government,  but  the  currency  which  would  almost  inev- 
itably arise  out  of  large  local  deposits  of  the  precious 
metals,  has  been  carefully  cut  off  and  destroyed.  Orders 
upon  these  deposits,  certificates  of  deposit,  gold  notes, 
anything  which  would  represent  these  relatively  useless 
hordes,  would  be  seized  with  avidity,  and  give  another 
firm  element  to  the  currency,  —  an  element  which,  with 
slight  care  and  expansion,  might  shape  itself  into  the  sub- 
stance of  a  most  solid,  available,  and  widely  commercial 
currency.  By  a  close  restriction  of  time,  the  good  which 
it  seemed  almost  inevitably  about  to  do  was  adroitly 
escaped,  and  the  ■  government,  withdrawing  with  large 
amounts  of  specie,  left  the  national  currency,  with  its 
monstrous  paper  circulation,  its  unguided  and  unrestrained 
issues,  its  endless  variety  in  the  kinds  and  the  securities 
of  its  media,  to  drift  on  —  to  do  what,  and  ruin  what,  it 
might. 

In  a  mixed  currency  there  is  but  one,  the  metallic, 
element  that  is  self-regulating.  The  paper  element  is 
wholly  artificial,  and  has  no  security  save  that  which  is , 
given  it  by  wise  and  firm  laws.  Uniformity  and  steadi- 
ness in  the  regulating  law  can  alone  impart  these  quali- 
ties to  the  currency,  and  make  it  for  a  moment  worthy  of 


340  POLITICAL   ECONOMY. 

the  adoption  of  a  civilized  and  reflective  people.  Most  of 
its  evils  may  be  overcome,  most  of  its  advantages  may  be 
gained ;  but  not  without  careful  tlieory  and  broad  experi- 
ence, combined  in  a  steadily  and  widely  applied  law. 
Nothing  could  be  surer  to  precipitate  a  people  into  every 
evil  of  which  such  a  currency  may  be  the  prolific  source, 
than  to  leave  every  partial  community,  enfolded  in  a 
broader  community,  to  try  its  own  experiments,  and  follow 
out  its  own  theories.  Nothing  of  consistency  and  univer- 
sality can  be  so  gained.  Every  experiment  conflicts  with 
and  embarrasses  every  other,  and  nothing,  can  be  a  better 
proof  of  our  unbounded  strength  than  the  success  with 
which  our  emphatically  mixed  currency  has  met,  or,  rather, 
than  the  limited*  difficulties  in  which  it  has  succeeded  in 
involving  us;  we  have  tripped  without  falling.  But  the 
nature  and  respective  worth  of  a  mixed  and  metallic  cur- 
rency demand  further  unfolding. 

$  2.  It  is  not  claimed  for  a  mixed  currency  that  it  per- 
forms its  office  better  than  a  metallic  currency,  aided  by 
banks  of  deposit  and  discount ;  this  last  is  rather  regarded 
as  furnishing  the  practical  standard  of  excellence  in  this 
department,  and  the  highest  claim  made  for  a  mixed  cur- 
rency is,  that  it  performs  its  duties  as  well  as  such  a 
currency,  with  greater  economy.  That,  in  the  larger  num- 
ber of  actual  cases,  a  mixed  falls  decidedly  short  of  the 
efficiency  and  perfection  of  a  metallic  currency,  is  also  gen- 
erally admitted,  though  the  advocates  of  the  former  are 
ever  able  to  assign  a  reason  and  show  a  remedy.  That  a 
metallic  currency  is,  in  the  regularity  of  its  action,  regarded 


CURRENCY.  341 

as  the  standard  of  perfection,  is  clearly  seen  in  the  fact, 
that  every  mixed  currency  is  based  upon  specie,  and  that 
all  effort  is  directed  to  so  uniting  paper  to  specie,  that  they 
shall  both  be  equally  affected  by  the  natural  laws  which 
govern  the  latter.  Waiving  the  question,  whether  this 
ideal  perfection  of  a  mixed  currency,  by  which,  in  the 
promptitude  and  stability  of  its  action,  it  shall  equal  a  pure 
and  simple  currency,  is  ever  or  can  ever  be  reached  in 
practice,  we  pass  to  our  first  proposition. 

JVb  currency  inferior  to  the  best  attainable  currency  is  truly  economical. 

The  truth  of  this  proposition  is  seen  in  the  extensive 
and  vital  character  of  the  influence  exerted  by  currency, 
and  the  fundamental  nature  of  its  duties.  Anything 
which  either  retards  or  accelerates  the  general  forces  of 
production,  which  embarrasses  or  sustains  industry,  cannot 
fail  quickly  to  accomplish  results  far  greater,  though  much 
less  observable,  than  the  gains  and  losses  of  individuals. 
What  would  seem  the  most  expensive  and  financially 
minous  wars,  sometimes  so  raise  prices  and  quicken  the 
'industrial  energy  of  a  nation,  as  rather  to  increase  than 
abate  its  prosperity.  The  yearly  expenditure,  though 
very  great,  has,  through  additional  stimulus,  occasioned 
corresponding  gains ;  the  heaviest  losses,  calling  forth 
fresh  energy,  have  been  speedily  redeemed. 

The  very  life  of  all  large  and  safe  commercial  move- 
ments is  confidence ;  and  nothing  is  so  sure  a  thermome- 
ter of  the  general  integrity,  as  the  integrity  of  the  cur- 
rency. Let  there  be  the  slightest  suspicion  here,  and  it 
will  spread  the  torpor  of  fear  through  all  relations  and  all 

29* 


342  POLITICAL  ECONOMY. 

undertakings.  It  is  felt  that  currency,  if  involving  credit, 
does  and  should  involve  it  in  its  firmest  form,  and  there- 
fore, that  the  least  Weakness  here  betokens  general  fail- 
ure. In  entire  consistency  with  this,  is  the  fact,  that 
every  commercial  crisis  is  carried  to  its  climax  by  a  run 
upon  the  banks ;  and  that  not  till  these  have  suspended, 
is  the  movement  deemed  complete,  and  the  end  reached. 
Crises  are  by  no  means  to  be  ascribed  exclusively,  per- 
haps not  principally,  to  the  currencies  in  connection  with 
which  they  have  occurred ;  yet,  these  currencies  exert  a 
powerfully  quickening  or  restraining  agency  upon  them. 
The  waste  of  one  such  crisis  —  the  industry  of  a  conti- 
nent suspended  or  retarded  for  months,  and  even  years  — 
would  outweigh  the  gains  of  many  years,  under  a  mixed 
currency.  It  is  from  the  fact,  that  an  efficient  currency  is 
so  intimately  connected  with  the  stimulus  and  safety  of 
every  industrial  movement,  —  that  its  gains,  though  imper- 
ceptible, are  so  constant  and  universal,  —  that  we  argue 
its  economy.  It  is  also  from  the  restraining  and  controll- 
ing power  which  such  a  currency  is  able  to  exert  over  the 
rise  and  ripening  of  a  commercial  crisis,  that  we  infer  its 
economy. 

A  further  proof  of  this  proposition  is  the  fact,  that  the 
gains  of  a  mixed  currency  accrue  mainly  to  a  few  indi- 
viduals. However  great  these  gains  may  be,  they  fall 
chiefly  to  the  banks  to  which  the  issue  of  bills  is  com- 
mitted. This  is  no  reason  why  they  should  be  decried  or 
lightly  esteemed ;  but  it  is  a  reason  why  any  amount  of 
them  is  not  equivalent  to  the  same  amount  added  widely 
to  the   ordinary  gains  of  industry.     To  give   employment 


CURRENCY.  843 

to  eleven  men  instead  of  ten,  is  something;  but  not  so 
much  as  to  add  one-tenth  to  the  results  of  labor  —  to  the 
returns  of  the  ten.  If  numbers  are  crowding  upon  each 
other,  and  upon  business,  such  a  pressure  may  be  for  the 
moment  relieved  by  these  additional  openings  to  profitable 
exertion ;  but  where  there  are  many  avenues  yet  open  to 
profitable  effort,  it  is  no  great  public  gain  to  institute  a 
new  class,  and  reward  it  with  a  new  income.  Especially 
it  is  not  so,  if  this  income  is,  in  the  slightest  degree,  to 
detract  from  the  security  and  reward  of  general  industry. 
Bankers  do,  indeed,  find  profitable  employment ;  so  might 
they,  as  intelligent,  enterprising  men,  without  banks.  It 
is  only  a  question  whether  this  or  some  other  species  of 
industry  shall  be  fully  developed.  Stockholders  find  profit- 
able employment  for  their  capital ;  so  might  they  with- 
out banks  of  issue. 

So  far,  therefore,  as  the  class  of  bankers  would  be  re- 
duced in  numbers,  we  are  not  to  regard  their  expunged 
profits  as  a  loss,  since  these  persons  are  redeemed  to 
other  and  equally  valuable  forms  of  industry.  It  may  be 
said,  that  banks  of  deposits  and  discounts,  though  fewer 
in  number,  must  necessarily  charge  a  somewhat  higher 
rate  to  compensate  the  loss  through  the  suppression  of 
the  function  of  issue  ;  and  that  less  capital  would  now  be 
present  in  the  loan  market.  Neither  of  these  results 
could  follow  in  any  high  degree;  and  the  tendency  to 
restrict  credit  resulting  from  slight  additional  difficulty  in 
the  terms,  could  hardly,  all  things  considered,  be  deemed 
an  evil. 

We   argue  the  economy  of  the  best  currency  from  the 


344  POLITICAL   ECONOMY. 

fact,  that  the  gains  accruing  from  any  other,  far  from  being 
such  as  can  compensate  the  loss  arising  from  any  general 
embarrassment,  are  but  trifling.  These  gains  are  not  the 
interest  on  the  full  sum  by  which  the  paper  in  circulation 
exceeds  the  specie  on  which  it  is  based,  but  this  sum  re- 
duced by  the  excess  induced,  beyond  the  real  demand  of 
exchange,  by  the  persistency  of  banks  in  forcing  their 
issues  into  the  currency.  A  considerably  smaller  sum 
than  that  appearing  in  a  currency  always  saturated  with 
paper,  could,  in  brisk  exchange,  accomplish  the  same 
business. 

The  whole  paper  currency  of  the  United  States,  in  1856, 
has  been  stated  at  one  hundred  and  seventy-five  millions 
of  dollars ;  the  reserved  specie  at  fifty-nine  millions,  — 
leaving  a  balance  of  one  hundred  and  thirty-six  millions. 
By  the  same  authority,  the  inflation  of  the  currency  be- 
yond the  demand  is  put  as  high  as  seventy-five  millions, 
leaving  a  second  balance  of  sixty -one  millions.  The  use, 
therefore,  of  this  sum,  which,  at  six  per  cent.,  is  three 
millions  six  hundred  and  sixty  thousand  dollars,  is  the 
gross  national  gain  of  a  mixed  currency.  But  from  this 
there  must  be  made  further  very  important  deductions. 
The  expense  and  loss  of  bills  considerably  exceeding  the 
abrasion  of  a  metallic  currency,  the  loss  from  counter- 
feits, and  the  cost  of  the  detection  and  punishment  of 
this  kind  of  crime,  arising,  as  it  does,  from  the  facilities 
which  such  a  mixed  currency  offers,  are  to  be  deducted. 
If  this  mixed  currency  is  not,  through  all  its  agents, 
brought  up  to  the  integrity  of  gold,  there  is  a  still  further 
deduction  of  all  bills  wholly  bad,  and  of  the  discount  on 


\ 

CURRENCY.  345 

those  partially  bad.  There  is  also  to  be  deducted,  accord- 
ing to  what  has  already  been  said,  the  salaries  of  the 
agents,  and  the  profits  of  the  capital  employed  in  a  mixed 
currency,  beyond  the  agents  and  capital  employed  in  a 
metallic  currency.  If  these  deductions  could  all  be  reached 
and  accurately  made,  the  residuum  of  gain,  as  the  na- 
tional gain  of  an  inferior  currency,  would  be  very  small, — 
not  sufficient  to  outweigh  the  slightest  embarrassment  of 
industry.  It  should  also  be  remembered,  that  the  greater 
the  gains  secured  by  this  method  of  economy,  the  greater 
its  danger ;  and  the  firmer  the  currency  on  its  specie 
pedestal,  the  less  the  gains.  We  have  not  meant,  thus 
far,  to  imply  that  a  mixed  currency  is  necessarily,  in  every 
form,  inferior  to  a  metallic  currency ;  but  rather  implying, 
what  all  would  readily  admit,  that  our  poorest  currencies 
are  found  among  our  mixed  currencies,  to  affirm  of  these 
that  their  gains  never  atone  for  their  inferiority ;  in  short, 
to  exclude  any  and  every  mixed  currency  which  does  fall 
below  the  best.  How  probable  it  is,  that  a  mixed  will 
ever  practically  equal  a  metallic  currency,  we  shall  better 
see  hereafter.  Our  first  proposition  will  not  claim  any 
more  direct  proof,  since  what  we  shall  say  under  other 
heads  will  throw  more  light  upon  it. 

§  3.   The  best  currency  is  that  whose  media  are  least  liable  to  fluc- 
tuation. 

As  has  already  been  sufficiently  shown,  gold  and  silver, 
of  all  known  substances  able  to  become  the  media  of 
exchange,  best  meet  this  condition  of  a  good  currency. 
These  are  our  standard  of  practical  stability  in  currency ; 


346  POLITICAL   ECONOMY. 

and,  though  they  are  not  without  great  and  permanent 
changes  in  value,  we  have  no  further,  no  additional  method 
of  escaping  this  difficulty.  Nor  has  it  been  found  often 
seriously  to  detract  from  their  utility,  in  the  rough  work- 
ings and  gross  estimates  of  actual  life.  Fluctuation  is, 
however,  in  all  its  forms,  undesirable  in  its  effects  on  the 
precious  metals  as  media  of  exchange.  A  slow  and  steady 
decrease  is  certainly  the  most  favorable  of  all  forms  of 
variation.  Some,  indeed,  have  been  led  to  look  upon  it 
rather  as  advantageous,  than  otherwise.  "  Far  from  re- 
garding a  considerable  decline  in  the  value  of  money, 
when  produced  by  natural  causes,  as  a  calamity,  we  con- 
sider it  as  a  blessing.  It  will  greatly  alleviate  the  burden 
of  taxation  in  many  states  that  are  now  oppressed  by  a 
heavy  national  debt.  Private  debts,  as  well  as  public,  will 
become  easier  to  bear;  they  will  be  subject  to  a  steady 
process  of  abatement,  too  slow,  and  compensated  in  too 
great  a  variety  of  ways,  to  occasion  any  serious  loss  to  the 
creditor,  and  still  affording  a  sensible  relief  to  all  who 
have  payments  to  make.  The  greater  proportion  by  far 
of  fixed  payments  are  made  by  those  who  are  engaged 
in  business  or  industrious  undertakings,  to  those  who  are 
enjoying  leisure  and  wealth.  Thus,  the  relief  and  the 
encouragement  come  to  the  more  active  and  industrious 
classes,  while  the  loss,  small  in  proportion,  falls  upon 
those  who  are  most  able  to  bear  it.  The  increasing  abun- 
dance of  money,  and  the  steady  rise  of  prices,  stimulate 
all  forms  of  industry  and  enterprise.'  As  the  operations  of 
trade  and  manufacture  are  quickened,  wages  tend  to  rise 
even  in  a  higher  ratio  than  the  prices  of  commodities." 


CURRENCY.  o47 

This  is,  at  least,  too  strongly  stated.  A  decline  in  the 
value  of  a  currency  may  not  be  without  some  compensa- 
tion ;  but  that  the  most  uniform  descent  is  preferable  for 
the  purposes  of  exchange,  for  the  interest  of  production, 
to  a  position  entirely  stable,  we  cannot  believe.  It  can 
only  alleviate  taxation  as  taxation  arises  from  a  national 
debt;  and  this  relief  is  wholly  at  the  expense  of  justice 
and  the  validity  of  contracts.  An  obligation  is  not  truly 
met,  that  is  met  with  a  value  by  one-tenth  or  one-fifth  less 
than  that  which  was  received,  and  for  which  payment  was 
stipulated.  An  agreement  of  figures  may  disguise,  but 
cannot  alter  a  discrepancy  of  things.  The  same  is  true 
of  "  private  debts."  If  these  are  to  be  reduced,  they  must 
be  reduced  at  the  expense  of  the  creditors ;  and  anything 
which  is  a  "  sensible  relief"  to  the  debtor,  must  be  an 
equally  sensible  burden  to  the  creditor.  We  cannot  think 
that  production  is  benefited  by  such  a  decline,  because, 
in  many  instances,  debts  are  due  from  the  poor  to  the 
wealthy.  Nothing  lies  more  at  the  foundation  of  all  indus- 
trial interests  than  justice  and  the  protection  of  property. 
Without  these  there  is  little  or  no  stimulus  to  exertion. 
It  is  a  false  notion,  —  at  least  in  many  countries,  —  that 
industry  owes  more  to  the  poor  than  to  the  rich.  In  our 
own  country,  it  is  rather  the  latter  who  have  been  her 
special  and  most  successful  patrons ;  and  anything  which 
abates  their  enterprise  would  injure  production  and  the 
poor,  far  more  than  the  petty  gains  of  currency  could 
benefit  them.  A  steady  percentage  of  loss  in  currency 
would  act  like  additional  risk,  and  demand,  in  a  market  of 
loans  in  other  respects  the  same,  an  additional  per  cent., 


348  POLITICAL   ECONOMY. 

resting  as  an  extra  charge  on  new  loans,  to  compensate 
this  decline.  Nor  are  all  debts  owed  to  those  who  can 
readily  lose  a  portion  of  them.  Our  institutions  of  learn- 
ing and  charity  have  their  property  represented  in  funds, 
and,  in  the  decline  of  these,  would  find  their  endowments 
ebbing  away.  Widows,  pensioners,  and  the  dependents 
of  all  sorts,  usually  have  their  incomes  represented  in 
money,  and  would  find  the  general  gain  a  severe  private 
loss.  Increasing  abundance  in  a  single  department  like 
that  of  gold,  would  be  but  a  feeble  stimulus  to  general 
trade,  —  especially  when  it  was  found  that  the  purchasing 
power  of  this  metal  was  reduced  as  rapidly  as  its  amount 
increased.  Labor  would  receive,  to  the  eye  and  the  hand, 
larger  wages ;  but  the  moment  a  purchase  was  made,  this 
illusion  would  be  destroyed. 

To  attribute  to  such  a  cause  "  the  marvellous  develop- 
ment of  wealth  and  material  prosperity  in  England,  during 
the  reign  of  Elizabeth,"  seems  preposterous.  It  is  very 
conceivable  that  a  new  continent,  promising,  and  some- 
times giving  to  the  adventurer  immediate  wealth,  still 
more  a  reformation,  and  the  awakening  forces  of  a  new 
intellectual  life,  might  bring  with  them  great  industrial 
improvement ;  but  to  attribute  these  results  to  a  declining 
currency,  is  to  transform  a  very  minor  effect  into  a  leading 
cause.  If  this  view  is  correct,  the  most  efficacious  of 
all  productive  agents — that  by  which  poverty  is  effec- 
tually and  perpetually  lifted  up  —  must  be  a  steady  de- 
cline in  the  media  of  exchange.  Is  it  not  a  reductio  ad 
absurdum,  to  suppose  this  process  to  continue  till  these 
media  were  on  a  level  with  iron  and  lead  ?     What  would 


CURRENCY.  349 

be  the  industrial  state  in  which  this  inclined  plane  would 
lodge  us  ?  Would  not  the  sum  of  our  gains  be  the 
swallowing  up  of  the  most  valuable  of  the  functions  of 
the  precious  metals,  in  their  less  valuable  ministration  to 
the  arts  ?  Is  not  the  whole  truth  of  this  theory  contained 
in  the  fact,  that,  in  connection  with  an  increase  of  gold, 
there  is  usually  present  a  spirit  of  discovery  and  enter- 
prise, of  which  this  decline  in  its  value  is  but  a  single 
result  ? 

But,  whatever  may  be  thought  of  a  steady  movement 
downward  in  the  media  of  currency,  in  reference  to  all 
oscillation  of  value  there  can  be  but  one  opinion.  Such 
oscillation  can  only  tend  to  vex  and  hamper  all  exchange, 
capriciously  turning  its  gains  into  losses,  and  robbing  effort 
of  its  promised  success.  The  oscillations  of  value  in  a 
metallic  currency  are  very  slight;  the  movements  which 
do  exist  have  a  long  sweep  and  a  single  tendency.  Not 
so  those  of  a  mixed  currency,  when  not  brought  up  to  the 
perfect  action  of  a  metallic  currency. 

The  violent  manner  in  which  bills  take  possession  of  a 
currency,  and  the  irregularity  of  their  movements  when 
in  possession,  a  little  observation  and  thought  make 
manifest.  Suppose  a  metallic  about  to  be  displaced 
by  a  mixed  currency;  that  the  amount  to  be  displaced 
is  one  hundred  millions ;  the  small  change  left  in  circu- 
lation, ten  millions ;  and  that  the  proportion  between  re- 
served specie  and  bills  is  one  to  four,  —  a  proportion  much 
safer  than  that  which  actually  exists  in  many  of  our 
states,  —  there  is,  then,  seventy -five  millions  to  be  sent 
abroad,  otherwise  there  is  no  gain,  but  only  the  loss  aris- 

30 


OoO  POLITICAL   ECONOMY. 

ing  from  a  crowded  currency.  A  force,  then,  is  to  be 
applied  sufficiently  strong  to  drive  out  more  than  two- 
thirds  of  the  whole  currency.  It  is  evident  that  every 
artery  of  exchange  must  be  injected  with  bills,  every  de- 
vice employed,  till  prices  are  earned  up,  and  foreign  trade 
is  thereby  attracted  in  a  strong  stream,  leaving  a  large 
balance  to  be  liquidated  in  the  expelled  coin.  While  this 
process  is  going  on,  currency  must  be  seriously  distended, 
since  it  is  only  by  a  decidedly  enhanced  price  that  the 
expulsion  of  specie  in  sufficient  quantities  can  take  place. 
Fortunate  will  it  be,  if  the  force  is  evenly  and  persistently 
applied,  if  the  ingress  of  bills-  and  egress  of  specie  does 
not  take  place  in  a  series  of  short  and  violent  transitions. 
But  this  is  too  much  to  be  expected.  The  banks  start 
with  a  certain  amount  of  specie.  Resting  on  this  as  a 
fulcrum,  they  issue  their  bills  and  apply  their  force.  The 
force  begins  to  take  effect,  and  specie  is  wanted  for  the 
foreign  market.  This  specie  the  banks  must  do  their  full 
share  in  furnishing.  Bills  retnm  in  search  of  it.  These 
having  now  withdrawn  the  specie  basis,  the  issues  must 
be  suspended  till  this  is  renewed.  For  a  moment  there 
is  a  cessation  of  force.  Prices  fall,  and  the  banks  are 
busy  in  occupying  the  space  gained,  and  preparing  the 
specie  basis  requisite  for  another  effort.  All  things  at 
length  being  ready,  the  force  is  again  applied.  Prices  go 
up,  and  further  room  is  made  with  a  like  relapse.  The 
currency  is  first  plethoric,  then  depleted,  and  every  stage 
is  alike  transitional. 

Nor  is  the  currency  more  permanent  when  this  transi- 
tion  is  completed,  and  the  seventy-five  millions  is  fairly 


CURRENCY.  351 

displaced.  The  currency  will  not  readily  return  to  its  first 
amount  of  one  hundred  and  ten  millions,  and  it  will  only 
be  some  severe  pressure,  arising  from  the  demand  for 
specie  to  meet  foreign  indebtedness,  that  will  finally  com- 
pel the  banks  to  restrain  their  issues,  and  thus  force  down 
prices.  If  anything  less  than  a  crisis  puts  a  stop  to  a 
movement,  strong  enough  and  protracted  enough  to  expel 
seventy-five  millions,  there  is  again  cause  for  gratitude. 
But,  the  movement  stopped,  the  exchange  reduced  to  par, 
and  a  paper  circulation  firmly  established  on  a  specie 
basis,  the  oscillations  are  not  completed.  Unfavorable 
balances  must  arise  in  the  course  of  trade ;  and  these  are 
to  be  met  from  reserved  specie.  But  if  the  safety  of  the 
currency  is  to  be  regarded,  one  million  removed  here 
must  be  followed  by  the  withdrawment  from  circulation  of 
four  millions  of  bills ;  and  thus  every  force  derived  from 
this  and  kindred  sources,  such  as  war  and  specie  taxation, 
is,  before  it  acts  on  the  currency,  multiplied  by  four.  So, 
also,  all  influx  of  specie,  in  a  correspondingly  high  degree, 
inflates  the  currency.  The  same  violent  oscillations  take 
place  when  the  banks  are  subjected  to  a  run,  or  feel  the 
monitions  of  a  gathering  storm.  As  the  sea  is  calm  or 
ruffled,  these  paper  sails  are  spread  and  taken  in;  and 
when  money  is  most  wanted,  the  banks  are  all  scudding 
under  naked  poles.  We  have  supposed,  in  this  discussion, 
the  comparatively  low  ratio  of  four  to  one  to  be  steadily 
maintained.  If  the  eagerness  of  the  banks  should  lead 
them,  as  in  most  instances  it  does  lead  them,  to  depart 
from  this  ratio,  the  oscillations  would  be  increased  in 
violence,  and  the  danger  of  entire  suspension  imminent. 


852 


POLITICAL   ECONOMY. 


These  oscillations  are  brought  out  in  the  following  tables. 
"  The  circulation  of  all  the  banks  in  the  United  States 
has  been,  in  round  numbers,  as  follows  : 


an  expansion  of  36  per  cent. 
a      7 

a  contraction  "    22         " 
an  expansion  "    20         " 


In  1835 
"  1836 
"  1837 
"  1838 
"  1839 
"  1840 
"  1843 
"  1844 
"  1846 
"  1851 
"  1856 


"  The   whole   circulation    in   the    State   of  New  York 
was,  in 


$103 

millions 

140 

" 

149 

u 

116 

a 

139 

a 

106 

t< 

58 

a 

75 

" 

105 

u 

155 

" 

195 

a 

a  contraction 

u 

24 

u 

u 

45 

an  expansion 

a 

29 

u 

" 

40 

u 

u 

48 

u 

a 

26 

Jan'y  1831,  in  round  numbers,  818  millions. 


1836 
1837 
1838 
1839 
1840 
1841 
1842 
1843 


21  "  an  expansion  of  1 7  pr.  ct. 

24  "               "  "  14      " 

12  "  a  contraction  "  50      " 

19  "  an  expansion  "  58      " 

14  "  a  contraction  "  26       " 

18  "  an  expansion  "  29      " 

14  "  a  contraction  "  22      " 

12  "               "  "  14  pr.  ct.' 


§  4.  The  obvious  result  of  such  oscillations  is,  that 
money,  even  within  very  limited  periods,  ceases  to  be  a 
tolerable  measure  of  value  and  an  honest  medium  of  ex- 
change. They  produce  an  uncertainty  in  the  loan  market, 
embarrassing  all  business  transaction,  and  provocative  of 
many  needless  bankruptcies.  When  banks  are  in  expan- 
sion, loans  are  easy;  when  in  contraction,  exceedingly  dif- 


CURRENCY. 

ficult.  A  business  resting  on  the  accommodation  afforded 
in  the  first  state,  is  almost  sure  to  sink  in  the  second 
state. 

Such  a  currency  can  exert  no  restraint  on  crises,  and 
lend  no  assistance  when  they  have  occurred.  Banks  are 
involved  in  the  difficulty,  and  cannot  therefore  help  others 
out. 

The  loose  methods,  the  irresponsible  and  venturesome 
spirit  belonging  to  extensive  credit,  cannot  fail  to  be 
aided  and  encouraged  by  a  currency  involving  in  a  large 
degree  the  same  elements.  When  the  contagion  of  spec- 
ulation and  flimsy  credit  has  seized  the  currency,  there  is 
no  barrier  remaining,  no  safe  and  healthy  action  with 
which  to  expel  or  reduce  the  fever. 

In  a  business  community  of  which  this  daring  spirit  has 
taken  large  possession,  there  must  necessarily  be  many 
failures;  and  the  additional  risk  to  which  all  capital  is 
thereby  exposed,  will  demand  a  higher  per  cent.,  and 
make  the  path  of  those  who  still  hold  to  a  slower,  firmer, 
and  more  honest  method,  more  difficult.  In  short,  as  a 
natural  and  auxiliary  member  of  a  credit  system,  a  mixed 
currency,  to  the  full  degree  in  which  it  falls  short  of  the 
stability  of  a  metallic  currency,  will  contribute  to,  and  be 
responsible  for,  all  the  evils  which  we  have  seen  to  inhere 
in  such  a  system.  An  unsubstantial  credit  in  every  kind 
and  degree,  in  currency  and  out  of  currency,  is  decay  at 
the  centre  of  the  system,  at  the  heart  of  the  tree ;  and, 
although  it  may  not  reduce  the  foliage  or  the  spread  of 
the  branches,  the  storm  will  discover  it.  The  prosperity 
of  the  United  States,  in  connection  with  a  currency  which 

30* 


354  POLITICAL   ECONOMY. 

has  been  subject  to  constant  fluctuation,  and  only  for  short 
periods  and  within  narrow  circles  has  ever  possessed  any- 
thing like  the  firmness,  elasticity,  and  vitality  of  a  pure 
medium,  may  indeed  make  decisive  proof  of  our  other 
advantages,  but  fails  even  to  weaken  the  proposition,  that 
the  best  is  the  most  stable  currency. 

§  5.   The  best  currency  is  the  one  that  is  self-regulating. 

The  natural  forces  which  act  on  currency  are  not  simply 
remedial,  but  preventative.  The  corrective  forces  begin  to 
act  with  the  first  rise  of  the  evil,  and  each  new  symptom 
evokes  a  corresponding  rigor  of  treatment.  The  limit 
within  which  the  vibrations  are  suffered  to  range,  is  com- 
paratively slight ;  and  these  forces,  if  unrestrained  by  arti- 
ficial barriers,  present  an  elastic,  but  rapidly-increasing 
resistance  to  all  violent  change.  The  evil  and  the  remedy 
are  so  thoroughly  synchronous,  that  neither  the  one  nor  the 
other  is  especially  observable,  or  seems  to  have  wrought 
a  change ;  the  compensation  is  so  immediate,  that  the 
evil  never  makes  head,  or  is  left  to  become  a  disease. 

A  metallic  currency  in  which  the  natural  forces  have 
full  scope,  and  which,  therefore,  is  thoroughly  self-regulat- 
ing, rapidly  scatters  any  surplus  of  coin  through  the  mar- 
kets of  the  world,  and  from  these  markets  as  rapidly  sup- 
plies any  deficiency.  The  large  amount  of  specie  requisite 
to  constitute  such  a  currency,  bears  too  great  a  ratio  to  any 
ordinary  additions  or  subtractions  to  make  these  the  cause 
of  any  perceptible  change  in  value ;  and  no  sooner  do 
these  additions  begin  to  take  place,  than,  tracing  them- 
selves in  the  rate  of  exchange,  and  in  the  rise  or  fall  of 


CURRENCY.  355 

prices,  foreign  trade,  through  all  its  avenues,  is  instantly  at 
work  to  correct  them. 

Foreign  trade  and  a  metallic  currency  mutually  correct 
each  other:  especially  is  this  true  when  no  extensive  and 
protracted  credits  are  suffered  to  disguise  the  real  state  of 
things.  The  currency  adjusts  the  balance  of  trade,  and 
by  its  own  rise  in  value  does  not  long  suffer  an  unfavora- 
ble balance.  Trade  gives  immediate  relief  to  an  over- 
charged currency,  and  as  quickly  replenishes  an  exhausted 
one.  A  slight  rise  of  price  invites,  and  a  slight  fall  of 
price  discourages,  foreign  goods— leaving  the  balance  of 
specie  to  pass  in  or  out  of  the  country,  as  the  exigency 
of  currency  demands.  Any  cheapness  of  the  metals  in 
one  country  compared  with  their  value  in  another,  will 
manifest  itself  in  the  exchange  existing  between  the  two 
countries,  and  add  itself  as  a  premium  on  all  payments 
from  the  first  to  the  second,  and  deduct  itself  as  a  loss 
from  all  payments  from  the  second  to  the  first.  The  me- 
tallic currency  of  any  country  has  the  amount  of  the 
precious  metals  falling  to  its  share  denned  by  being  the 
fourth  member  of  the  proportion:  the  world's  exchange 
is  to  its  own  exchange  as  the  whole  amount  employed  in 
currency  is  to  its  own  amount.  The  value  is  defined  by 
the  relation  of  the  aggregate  supply  to  the  aggregate  de- 
mand—  of  the  world's  currency  to  the  world's  business. 
It  is  the  office  of  trade  to  anticipate  and  destroy  all  local 
inequalities.  Each  single  currency  is  a  bay  with  a  broad 
channel,  through  which  it  receives  the  pulse  of  the  ocean. 

A  mixed  currency,  on  the  other  hand,  has  little  or  no 
self-regulating  power.     It  is  the  creature  of  human  law, 


356  POLITICAL   ECONOMY. 

and  must  share  its  defects  and  mistakes.  It  cannot,  in- 
deed, be  issued  in  unlimited  amounts,  as  business  cannot 
take  it  up  in  every  amount;  but  it  can  be  issued  and 
forced  into  circulation  in  very  excessive  and  injurious 
amounts.  Paper  can  circulate  without  any  specie  basis, 
but  only  by  virtue  of  the  most  rigorous  restriction;  and 
the  instant  this  restriction  is  removed,  it  flashes  into  smoke 
with  all  the  destructive  force  of  powder.  With  a  specie 
basis  it  is  less  volatile ;  but  what  ratio  this  basis  shall  bear 
to  the  issues,  rests  solely  on  regulation,  and  very  easily 
escapes  all  regulation.  If  left  to  private  bankers,  under 
the  regulations  of  a  general  or  specific  law,  the  interests 
of  these  bankers  are  in  direct  conflict  with  the  restrictions 
of  the  law;  and  this  artificial  restraint,  perhaps  judicious, 
perhaps  injudicious,  fails  in  its  application.  Individual  cun- 
ning, ever  awake,  is  too  much  for  the  slumbering  justice 
of  law.  If  the  government  takes  this  function  of  issue  to 
itself,  the  difficulty  is  by  no  means  removed ;  the  tempta- 
tion is  then  transferred  from  individuals  to  the  state,  and 
in  this  conflict  between  what  is  deemed  an  immediate  and 
certain,  and  an  uncertain  and  future  good,  the  latter  is  not 
always  more  successful  than  the  former.  A  large  institu- 
tion like  the  Bank  of  England,  in  the  hands  of  individuals, 
but  under  the  immediate  inspection  of  the  government,  by 
the  balance  of  interests,  promises  and  gives  the  greatest 
security  to  any  regulations  which  may  be  adopted,  but 
does  not  remove  the  difficulty  —  as  seen  in  the  institution 
referred  to  —  of  deciding  what  those  regulations  shall  be. 

There  is  great  difficulty  in  securing  obedience  to  regu- 
lations when  made,  in  finding  a  power  to  which  they  can 


CURRENCY.  357 

be  entrusted,  with  an  ability  to  execute  them,  and  no 
interest  to  pervert  them.  Neither  the  individual  under 
the  state,  nor  the  state  alone,  is  such  a  power;  but  there 
is  an  equal  difficulty  in  saying  what  these  regulations  shall 
be.  Man  is  not  able  so  to  anticipate  and  treat  the  emer- 
gency, before  it  arises,  as  to  destroy  its  power.  There  is 
not  sufficient  prediction  in  his  methods :  they  are  but 
awkward  devices  of  escaping  an  evil  already  upon  him. 
When  the  general  facilities  for  bank  circulation  are  the 
greatest,  is  often  the  time  when  most  caution  and  parsi- 
mony in  issues  is  to  be  exercised ;  yet,  what  system  of 
regulations  will  effect  this?  When  the  embarrassment 
has  become  general,  if  the  previous  caution  lias  been  prac- 
tised, there  will  be  strength  left  to  render  aid.  But  how 
is  this  treasured  strength  and  its  judicious  expenditure 
to  be  secured  ?  A  metallic  currency,  when  the  indebted- 
ness was  increasing,  would  have  marked  the  fact  in  foreign 
exchange,  and,  when  the  crisis  came,  would  at  least  have 
remained  firm  up  to  the  full  extent  of  its  financial  value. 
The  tendency  of  paper  is,  in  many  instances,  to  exten- 
sion when  contraction  is  needed,  and  to  contraction  when 
extension  is  needed ;  and  no  system  of  regulations  can  so 
mark  the  several  exigencies  as  to  make  the  movement 
accurately  synchronize  with  the  necessity,  or,  if  it  mark 
them,  secure  obedience.  A  mixed  currency,  built  upon  a 
system  of  regulations,  is  artificial,  and  necessarily  defective 
in  its  action,  when  compared  with  the  operations  and  com- 
pensations of  natural  forces.  The  safe  ratio,  the  method 
of  issue,  and  the  time  of  expansion  and  contraction,  are 
all  questions  of  vital   importance  in  their  effect  on  cur- 


858  POLITICAL   ECONOMY. 

rency ;  but  questions  to  which  no  such  explicit  answers  — 
answers  of  universal  application  —  can  be  given,  as  to 
enable  the  most  conscientious  banks  to  anticipate  every 
danger. 

Nor  can  a  currency  consisting  largely  of  paper  be  made 
self-regulating  through  the  self-regulating  power  of  its 
metallic  element.  Undoubtedly,  such  a  union  of  the  two, 
as  that  all  the  forces  felt  by  the  one  shall  be  felt  by  the 
other,  is  the  best  dependence  of  a  mixed  currency;  yet 
the  lethargy  of  a  currency  made  torpid  with  paper,  will 
never  suffer  it  to  receive  and,  to  their  full  extent,  obey  the 
forces  which  act  on  a  pure  medium.  If  paper  is  constantly 
seeking  admission  into  the  circulation,  gold  and  silver  may 
be  abstracted  in  large  amounts,  without  availing  to  perma- 
nently reduce  high  prices  or  alter  exchange.  The  place 
of  the  gold  and  silver  is  filled  by  a  medium  which  has 
in  itself  no  limits,  no  value  abroad,  and  can  only  be  made 
circuitously  to  feel  the  general  law  of  value  which  acts 
on  the  metals. 

When  the  currency  is  saturated  with  bills,  and  the  ex- 
treme legal  ratio  has  been  reached,  so  that  the  issues  are 
made  immediately  dependent  on  the  influx  or  efflux  of 
specie,  the  case  is  altered  and  the  evil  reversed.  Specie 
being  but  a  fraction  of  the  currency,  every  increase  or  de- 
crease, if  the  ratio  is  preserved,  must  be  attended  with  a 
much  larger  increase  or  decrease  of  the  currency.  Every 
addition,  from  'whatever  source,  to  the  gold  and  silver  of 
the  country,  now  bears  a  much  larger  ratio  than  formerly 
to  that  already  present  and  occupied  in  the  exchange,  and 
may  be  made  the  occasion  of  a  much  more  marked  flue- 


CURRENCY.  359 

tuation  in  value.  If  prices  are  high,  and  demand  for  their 
reduction  the  exportation  of  the  precious  metals,  the  forces 
which  occasion  this  exportation,  acting  precisely  as  they 
would  under  a  metallic  currency,  carry  out  sufficient  quan- 
tities to  restore  the  equilibrium ;  but,  as  this  removal  of 
specie  must  be  followed  by  a  much  larger  removal  of  bills, 
the  currency  is  immediately  found  in  deficiency.  This 
deficiency  reduces  prices,  and  occasions  the  return  of 
specie.  But  this  return  again  multiplies  itself  in  bills;  and 
the  movement  in  bills,  following  after  and  adding  itself  to 
that  in  specie,  is  ever  liable  to  make  the  aggregate  effect 
on  the  currency  excessive,  and  to  demand  an  instant 
reversion  of  the  movement,  only  to  repeat  the  error  in  the 
opposite  extreme.  This  is  not  self-regulation,  but  self- 
destruction. 

We  see  that  there  are  two  cases :  one,  when  the  ratio 
is  not  fixed,  but  bills  are  suffered  to  take  possession  of 
any  ground  left  vacant  by  specie.  This  movement  can- 
not be  perpetual ;  and,  so  long  as  it  exists,  bills,  not  being 
dependent  on  specie,  do  not  share  its  movements,  and 
the  combined  currency  has  no  self-regulating  power.  A 
second,  when  the  ratio  is  fixed,  and  paper  sympathizes 
with  the  movements  of  specie.  In  this  case,  natural  laws, 
acting  with  their  full  force  on  specie,  add  and  subtract 
from  it  according  to  the  condition  of  the  currency;  but 
these  additions  and  subtractions,  being  shortly  followed 
by  still  larger  movements  in  the  same  direction  on  the 
part  of  paper,  are  made  excessive,  and  currency  forced 
into  a  rapid  oscillation.  In  each  instance,  paper  comes  in 
to  convert  the  specie  remedy  into  a  counter  disease.     A 


SGO  POLITICAL   ECONOMY. 

mixed  currency  is  not,  then,  self-regulating.  It  approaches 
self-regulation  with  each  reduction  of  the  ratio  between 
paper  and  specie;  and  when  these  are  equal,  —  when 
paper  stands  for  gold,  —  and  only  then,  will  the  currency 
share,  in  the  same  manner  and  measure,  the  movements 
of  the  latter. 

It  may  be  thought  that  the  very  extent  of  the  theo- 
retical defects  shown  to  exist  in  most  mixed  currencies, 
vitiates  the  theory,  or  shows  it  to  be  of  no  practical  value, 
since  such  currencies  have  been  used  by  the  most  pros- 
perous and  enlightened  nations  in  the  midst  of  their  full- 
est prosperity.  It  should  be  remembered,  however,  that 
prosperity  disguises  many  things,  and  that  the  test  of  a 
currency  is  not  ordinary,  but  extraordinary  times.  These 
evils  culminate  in  a  disease  —  in  a  crisis ;  and  this  test 
the  American  banks  have  never  been  able  to  meet.  They 
have  not  only  never  controlled  a  crisis  —  they  have  never 
been  able,  while  working  for  themselves  alone,  to  fully 
meet  it. 

Undoubtedly,  regulations,  where  an  efficient  regulating 
power  exists,  are  not  made  in  vain.  Many  of  these  difficul- 
ties have  been  removed  ;  but  without  a  wise  and  extensive 
central  force  pressing  equally  everywhere,  no  institution, 
so  artificial  and  so  precarious  in  all  its  movements  as  a 
mixed  currency,  can  be  sufferable.  A  great  commercial 
people  may  have  strength  to  bear  it,  but  should  also  have 
wisdom  to  cast  it  off.  It  fails  in  the  grand  criterion  of  a 
good  currency  —  a  firm  and  self- regulating  value. 

$  6.  In  closing  this  work,  we  wish  to  give  two  simple 


CURRENCY.  361 

illustrations  of  a  remark  made  in  its  introduction:  That 
when  the  equilibrium  of  forces  is  disturbed  in  the  eco- 
nomical world,  there  often  arises  a  series  of  actions  and 
reactions, — a  disturbance  at  many  other  points  besides  the 
one  immediately  affected,  —  and,  if  we  would  be  sure  of 
our  result,  not  only  the  direct,  but  all  subsidiary  and  com- 
pensatory movements  must  be  traced. 

The  first  example  is  that  of  absenteeism.  A  rich  land- 
lord, a  sinecurist,  leaves  the  country  from  which  he  draws 
his  revenue.  What  is  the  effect?  The  first  obvious 
result  is,  that  value  to  a  large  amount  is  annually  with- 
drawn from  the  country  thus  deserted.  Is  this  value  lost 
to  the  country  in  the  case  of  a  foreign  residence,  and 
retained  by  a  home  expenditure  ?  The  sinecurist  is  an 
unproductive  consumer;  and,  whether  at  home  or  abroad, 
his  luxury  is  the  finality  of  one  stream  of  industry.  Here 
it  empties,  and  turns  not  to  nourish  production.  In  either 
case,  therefore,  the  goods  of  all  sorts  consumed  by  a 
wholly  unproductive  agent,  are  a  tax  on  industry,  and  com- 
pletely lost  to  it.  But-  luxury  requires  the  assistance  of 
servants  and  artisans.  A  loss  would  seem,  then,  to  be 
occasioned  to  this  portion  of  the  community  by  the  trans- 
fer of  its  expenditures.  What,  and  how  much  this  loss 
is,  will  depend  on  the  permanency  of  the  foreign  resi- 
dence. If  servants  and  artisans  have  actually  been  gath- 
ered in  the  neighborhood  of  a  wealthy  establishment,  and 
have  learned  to  look  to  its  patronage  for  support,  then,  any 
transfer  will  be  attended  by  considerable  embarrassment 
on  their  part.  A  portion  will  follow  their  master  abroad, 
and  another  portion  will  be  compelled  to  modify,  or  wholly 

31 


362  POLITICAL   ECONOMY. 

alter  their  business.  If  the  country  is  already  full  of 
laborers,  —  a  country  like  Ireland,  —  then,  either  some 
occupations  must  be  still  further  pressed  by  this  new 
redundancy  of  labor,  or  the  full  quota  of  laborers  to  whom 
employment  had  been  given  be  forced  abroad.  The  coun- 
try will  also  find  its  arts  depressed,  and  the  variety  of  its 
home  market  limited  by  the  loss  of  some  of  its  best  arti- 
sans. It  is  evident,  that,  in  most  countries,  the  subsist- 
ence of  a  large  number  of  laborers  could  not  be  with- 
drawn without  inflicting  a  serious  injury.  Many  would 
be  unable  or  reluctant  to  follow  their  wages  abroad ;  many 
would  be  unable  to  modify  their  labor  at  home  without 
loss ;  and  other  departments  would  feel  unfavorably  the 
competition  of  new  laborers. 

If  the  residence  abroad  is  permanent,  and  has  not  been 
preceded  by  a  home  establishment,  the  extent  of  the 
injury  which  a  revenue  expended  abroad  inflicts  beyond 
the  same  revenue  expended  at  home,  will  depend  on  the 
character  of  the  remittances.  If  these  are  in  raw  mate- 
rial, or  that  which  represents  raw  material,  the  labor  requi- 
site to  manufacture  the  produce  into  commodities  ready 
for  consumption  is  lost  to  the  one  country,  and  gained  to 
the  other.  If  these  are  in  manufactured  products,  or  that 
which  represents  them,  then  as  much  labor,  save  that  of 
personal  servants,  is  employed  when  these  are  consumed 
abroad,  as  is  employed  when  they  are  consumed  at  home. 
If  the  luxury  of  a  wealthy  establishment,  complete  in 
itself,  consumes  the  services  of  fifty  men  wholly  paid 
from  the  revenue  of  the  master,  the  transfer  of  these 
retainers  either  to,  or  from  the  country  whose  industry  is 


CURRENCY. 

taxed  to  support  them,  cannot  essentially  affect  that  tax. 
The  only  privilege  which  remains  for  such  a  country  to 
ask,  is  that  of  furnishing  completed  products,  —  products 
containing  the  largest  relative  amount  of  labor  and  the 
least  of  raw  material, — and  thus  nourishing  its  own  indus- 
try. If  the  absentee  were  himself  to  return,  collecting 
his  retainers  from  the  country  taxed,  there  would  be  some, 
but  no  great  gain,  since  these  must  be  taken  from  other 
employments  in  which  they  are  realizing  a  support.  A 
little  play  would  thereby  be  given  to  population,  or,  this 
remaining  at  its  old  point,  some  advantage  in  the  labor 
market  to  laborers.  The  consumption,  then,  of  unpro- 
ductive persons  is  a  tax,  whether  they  remain  at  home 
or  go  abroad.  If  remittances  are  made  in  raw  material, 
there  is  a  loss  of  encouragement  to  home  industry.  If  a 
removal  takes  place,  transferring  wages  to  a  foreign  coun- 
try,—  population  not  being  so  fluent  as  readily  to  follow 
these,  —  there  is  a  depression  of  labor  in  the  home  mar- 
ket. If  a  wages-fund  is  brought  home,  a  corresponding 
advantage  is  given  to  labor.  In  either  case,  there  "will  be 
the  transient  evil  of  a  change  of  employment;  and  the 
country  expending  abroad  a  part  of  its  revenue,  will  have 
a  less  population,  less  variety  in  its  industry,  and,  conse- 
quently, somewhat  less  of  cheapness  and  rapidity  in  its 
exchanges.  In  no  two  cases  of  absenteeism  will  the  con- 
ditions be  the  same,  or  the  losses  the  same. 

The  second  example  is  that  of  a  permanent  tax,  as  a 
tithe,  in  favor  of  any  class  or  institution,  resting  on  all 
agricultural  produce.  We  have  only  to  do  with  the  effect 
of  such  a  tithe  on  production,  and  not  with  the  value  of 


364  POLITICAL   ECONOMY. 

the  thing  sustained  by  it.  If  one-tenth  of  all  produce  is 
to  be  paid  as  a  tax,  the  effect  on  agricultural  interests 
will  be  the  same  as  if  the  soil  originally  had  been  by 
one-tenth  less  fertile.  The  whole  amount  of  the  tithe 
will  be  deducted  from  rent.  The  price  of  grain,  raised 
on  whatever  soil,  must,  from  the  very  outset,  be  one-tenth 
greater  than  it  otherwise  would  be;  and,  in  the  same 
degree,  must  it  be  more  difficult  to  bring  new  land  into 
cultivation  or  raise  the  culture  on  the  old.  If  an  island 
of  the  size  of  England,  but  one-tenth  less  fertile,  lay  side 
by  side  with  it,  other  things  being  equal,  culture  must 
always  be  less  advanced  in  the  former  than  in  the 
latter;  since,  with  one-tenth  more  of  progress,  prices  in 
the  latter  would  still  remain  the  same  as  in  the  former. 
In  other  words,  there  would  always  be,  with  the  same 
extension  of  culture,  one-tenth  more  of  production,  and  of 
inducement  to  population,  in  the  one  than  in  the  other. 
As  population  depends  on  the  price  of  food,  it  would 
establish  itself  in  the  two  islands  in  the  ratio  of  nine  to 
ten;  and  at  that  ratio,  would  have  precisely  the  same 
advantages  in  each ;  save  only  that,  the  growth  of  culture 
being  less,  rents  would  also  be  less  in  the  one  than  in  the 
other.  As  rent  is  a  gain  that  slowly  accrues  without  labor, 
a  tithe  placed  early  only  anticipates  this  gain,  and  diverts 
it  to  another  channel.  What  would,  in  England,  have 
passed  into  the  pockets  of  the  landed  gentry,  is  turned 
to  the  support  of  the  clergy.  As  the  increasing  advan- 
tage which  the  possession  of  the  natural  agent,  land, 
affords,  comes  with  the  growth  of  population,  nothing  is 
more  fit  than  that  it  should  be  made  to  minister  to  the 


CURRENCY.  365 

general  good.  In  the  principle  of  the  tax  there  is  nothing 
of  injustice. 

A  country  bearing  such  a  tax  must  always  be  less  popu- 
lous than  it  would  be  without  it,  and  hence  forfeit  the 
advantage  which,  if  the  standard  of  general  comfort  is 
high,  belongs  to  numbers. 

The  effect  is  different  if  a  tithe  be  laid  on  a  people 
late  in  their  history,  when  population  has  extended  itself 
through  all  the  eligible  soils.  Such  a  tax  must  then  raise 
the  price  of  food,  depress  the  laboring  classes,  and  either 
force  population  back,  or  result  in  a  permanent  reduction 
of  comforts.  The  price  of  food  being  permanently  raised, 
and  population  already  in  excess,  no  immediate  relief 
could  be  afforded;  and,  before  the  slow  action  of  natural 
laws  could  make  it  complete,  a  low  social  state  must 
almost  necessarily  have  become  habitual,  thereby,  at  least 
in  part,  destroying  the  self-respect  by  which  population 
was  to  be  checked  and  the  level  of  comforts  restored. 
A  tithe  so  imposed,  could  hardly  fail  to  result  in  forcing 
down  the  laborer. 

On  the  other  hand,  the  removal  of  a  tithe  early  placed 
on  a  people,  would  give  a  margin  which,  to  the  intelligent 
laborer,  must  result  in  a  permanent  gain.  The  price  of 
necessaries  falling  without  affecting  wages,  must  leave 
a  larger  range  of  decencies  within  the  reach  of  the 
laborer.  Coming  into  fair  possession  of  these,  he  would 
not  willingly  resign  them ;  and  food  having  now  gained 
a  march  on  population,  prudence  would  enable  him  to 
retain  them.     The  actual  result  must  depend  on  the  self- 

31* 


866 


POLITICAL   ECONOMY. 


control  of  those  within  whose  reach  the  new  possibility 
should  be  placed.  Wisdom  is  requisite  in  all  depart- 
ments to  know  when  good  comes.  Intelligent  virtue  is 
as  requisite  for  lower  as  higher  products. 


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